Liquidation of Companies

1. T.Y.B.COM
FINANCIALACCOUNTING
SEMESTERVI
LIQUIDATIONOF COMPANIES

2.  Liquidation or winding up is a legal term and refers to the
procedure through which the affairs of a company are wound
up by law.
 A company is the creation of law, it cannot die itself as a
natural death. So, it comes to its end by law through the
process of liquidation.
 The Liquidation or winding up a company is a process through
which life of company and it’s all affairs are wound up and its
property administered for benefits of its creditors and
members.
 An administrator, who is called liquidator, is appoint to take
control of company, collect its assents, pay its debts and finally
if any surplus assents are left, they are divided among the
members of the company in proportion to their rights under the
articles. 2/7/20XX 2

3.  Liquidation in finance and economics is the process of bringing a business to an
end and distributing its assets to claimants.
 It is an event that usually occurs when a company is insolvent, meaning it
cannot pay its obligations when they are due.
 As company operations end, the remaining assets are used to pay creditors and
shareholders, based on the priority of their claims. General partners are subject
to liquidation.
 The term liquidation may also be used to refer to the selling of poor-performing
goods at a price lower than the cost to the business, or at a price lower than the
business desires.

4. • Winding up is the process of dissolving a company. It’s the process of
putting an end to the life of the company.
• While winding up, a company ceases to do business as usual.
• Its sole purpose is to sell off stock, pay off creditors, and distribute any
remaining assets to partners or shareholders.
• The term is used primarily in Great Britain, where it is synonymous with
liquidation, which is the process of converting assets to cash.
• Winding up a business is not the same as bankruptcy, although it is
usually an end result of bankruptcy.
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5. DIFFERENCE BETWEEN
WINDING UP
• It is A process whereby dissolution of A company is
brought about.
• Company exists
• Assets of the co. is released, and debts are paid
out of the amount so realized. if anything remains
is distributed among the members of the co.
• During winding up , a co. may carry on its affairs.
• Process is carried out liquidator.
• During process of winding up any person can bring
a claim for debt and the liquidator has to pay it.
• Company can be sued
DISSOLUTION
• It is the stage of the company when
business affairs of the company have been
completely wound up
• Company existence comes to an end
• It occurs after all the process of winding up
is complete
• No business affairs remain to be carried out
• The term of appointment of liquidator
comes to an end on dissolution of a co.
• After dissolution by a tribunal, a debtor
cannot get his claim certified
• Co. cannot be sued 5

6. MODEOF WINDINGUP
Compulsory
Winding up
Inability to pay
Debts
Insolvency &
Bankruptcy
Code
Grounds other
than inability to
pay Debts
Companies Act,
2013
Voluntary
Winding up
Upto 31st March,
2017
Companies Act,
2013
From 1st April,
2017
Insolvency &
Bankruptcy
Code
Winding up
under the
supervision of
the court.
Fraud in
company
Harmful product
of company
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Passing of special resolution for the
winding up
Holding statutory meeting
Failure to commence business
Reduction in membership
Inability to pay debts

8. The main object of a voluntary winding is that the company and
its creditors shall be left to settle their affairs without going to
Court, but they may apply to the court for any directions and
order if and when necessary.
Explanations:
 When the period fixed for the duration of the company has
expired
 If the company passes the special resolution of its winding up
by voluntary
 When the event occurs and the articles provide information
that when this event will occur then company has to be wound
up
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9. MEMBER VOLUNTARY
WINDING UP CREDITORS
VOLUNTARY
WINDING UP
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10. MEMBER VOLUNTARY WINDING
UP
 Members voluntary winding up takes place only when the
company is solvent.
 In case of members voluntarily winding up, Board of
Directors have to make a declaration to the effect, that
company has no debts.
 Directors of the company shall call a board of directors
meeting and makes a declaration of winding up
accompanied by affidavit, stated that:
• The company has no debts to pay,
OR
• The company will repay its debts , if any within 3years from
the commencement of winding up as specified in
declaration. 10

11. • Where the resolution for winding up has been
passed, but the directors are not in a position to
give declaration on the liability of company, they
may call meeting of the creditors, for the purpose
of winding up.
• It is the duty of board of directors to present full
statement of a company affairs and list of the
creditors along with their dues before the meeting
of the creditors.
• Whatever the resolution passes by the company
in meeting shall be given to the registrar within
ten days of its passing.
• Once the company is fully wound up its assets
and properties are sold or distributed shall be pay
off to the creditors in equal proportion and
therefore any property or money are left may be
distributed among the members according to their
rights and interest in the company.
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Members voluntary winding up
There is no committee
oThere is no meeting of creditors
oLiquidator appointed by the company in
the general meeting
oPower can be exercised by the liquidator
with the sanction of special resolution
passed at the general meeting
oControlled by the members themselves.
Creditor voluntary winding up
May appoint a committee
Meeting of contributor and there will be
corresponding meeting of the creditors
also
Both the member and creditor nominate
the liquidator.
Power can exercised with the sanction of
the tribunals or committee of inspection or
meeting of creditors.
Controlled by the creditors

13. • Court only supervises winding up procedure.
• Resolution for winding up is passed by members in the
general meeting.
• Liberty granted to creditors, contributories or others to
apply to court for some relief.
• The court may also appoint liquidators, in addition to
already appointed, or remove any such liquidator. The court
may also appoint the official liquidator, as a liquidator to fill
up the vacancy.
• Liquidator is entitled to do all such things and acts, as he
thinks best in the interest of company. He shall enjoy the
same powers, as if the company is being wound-up
voluntarily.
• The court also may exercise powers to enforce calls made
by the liquidators, and such other powers, as if an order
has been made for winding up the company altogether by
court. 2/7/20XX 13

14.  While it should stay the last option, it is always wise to know about liquidations.
 It also helps to set up your company, telling you all that you need if you ever run into a
similar situation.
 A business beyond redemption or revival asks for extreme measures to be taken. This
is when most opt for insolvency. But it can be prevented.
 For liquidation is not a preferred way of owners or the creditors; it’s only out of
extreme necessities the step is taken.
 Selling the business’ assets for money is the easiest way to end it. But, before you get
started on the process, you must ensure certain conditions prevail. This is to save the
company’s directors from getting into the wrong sides of the law.
 From legal viewpoints, fraudulent activities make a company go under liquidation. An
example would be exploiting minority shareholders.
 High levels of competition in the market cause companies to shut down. So do
frequent changes in the government policies. 14

15. 1. Petition
2. Statement of affairs
3. Opportunity of representation of the co.
4. Advertisement
5. Provisional liquidator
6. Hearing of petition
7. Order of tribunal
8. No order of binding up. i. other remedy is available. ii.Removing the default
9. Appointment of Liquidator
10. Communication of Order to official Liquidator and the registrar
11. Submitting statement of affairs to the Liquidator
12. Advertising the order
13. Report by the official liquidator
14. Order of dissolution
15. Filing copy of order with registrar. 15

16. An application to the Tribunal for the winding
up of a company is made by a petition . This
may be presented in following cases:
• Petition by the company
• Petition by any creditor/creditors
• Petition by any contributory/contributories
• Petition by Registrar
• Petition by central Government
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18. 2/7/20XX
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Receipts Estimated
Value Rs.
Realised
Value Rs.
Payments Estimated
Value Rs.
Realised
Value Rs.
To Assets
• Cash at Bank
• Cash in Hand
• Marketable Securities
• Bills Receivable
• Trade Debtors
• Loans & Advances
• Stock-in-trade
• Work-in-progress
• Freehold Property
• Leasehold Property
• Plant & Machinery
• Furniture, Fittings, Utensils, etc.
• Patents, Trade Mark, etc.
By Legal Charges
By Liquidator’s Remuneration
Where applicable-
% on Rs. …realised
% on Rs. …distributed
Total
(By whom fixed…)
By Auctioneers’ & Valuers’ charges
By Cost of possessing & maintenance of estate
By Cost of notice in Gazette & Newspaper
By Incidental Outlay (establishment charges & other
expenses of liquidator)
Total Cost & Charges
xxx
xxx
To Proceeds of call
• Unpaid call at the commencement of winding up
i. Debenture Holders
Payment of Rs. …per Rs.
To Amount received from call on contributories
made in the winding up
ii. Creditors
…* Preferential
…* Unsecured
Dividend(s) …P. in this rupee on Rs. …
To Receipts per Trading A/c
• Other Property
iii. Returns to Contributories
… P per rupee..# share
… P per rupee..# share
… P per rupee..# share
Total xxx Add Balance xxx
Less:
• Payments to Redeem Securities
• Cost of execution
• Payments per Trading A/c
XXX XXX
LIQUIDATORS FINAL STATEMENT OF ACCOUNT

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22. -DIVYA KAMALIYA
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