Modes of Liquidation of Company: Everything You Need to Know
The modes of liquidation of the company are important to the shareholders and directors responsible for running the company as well as the financial backing.3 min read updated on February 01, 2023
The modes of liquidation of the company are important to the shareholders and directors responsible for the running of the company as well as the financial backing. The term winding up the company is the term often used at the end of the company's life when the business is set to close. Since the corporate law does not allow a corporation to have a natural death, there must be an official termination of its existence.
During the winding up of the company, all the company affairs will be finalized. This can include such things as:
- Assets being sold
- Creditors being satisfied
- Shareholders receiving their distributions
Compulsory Winding Up
The term compulsory winding up is used when the company has been ordered to wind up by the court. There are multiple reasons a court may require a corporation to wind up including:
- Special resolutions created by the company that is resolved in court.
- Default which can be made by delivering a statutory report to the Registrar of Companies
- Not commencing a suspended company which requires that a business commence within one year of being incorporated
- If the number of members falls below seven for a public company and two for a private one
- If the company is unable to satisfy its debts
- If the court finds a just and equitable cause
Who Can Apply for a Company Winding Up?
There are multiple entities that can file for the winding up of a company including:
- The company
- A creditor
- Anu contributory
- A registrar
- A person authorized by the central government
What Are the Outcomes From Hearing a Petition?
There are multiple outcomes that a court can decide after a petition for a hearing to wind up a company. They can choose to:
- Dismiss it with or without costs
- Adjourn for a set period of time or indefinitely
- Provide an interim order
- Order the company to wind up with or without costs
What Are Some of the Consequences of a windup Order?
If the court makes an order to wind up a company, there are various consequences that can occur, dating back to the beginning of the winding up. Some consequences that may be the result of a windup ordered by the court include:
- Assigning an official liquidator and registrar
- The windup order being filed with the registrar's office
- Ordering the windup to be discharged
- Having the suit stayed permanently or for a set period
- Powers of the court
- The effect of the winding-up order
- Assigning the official liquidator to be liquidator
What Is the Procedure of Winding-Up by Court Order?
The court will become the official liquidator that is appointed by the General Government. There can also be assigned a Deputy or Assistant Official Liquidator or a provisional liquidator in the assigned liquidator's place. Once the court passes the order, the liquidator will become official and be empowered with the following abilities. The liquidator has the power to follow all court sanctions such as:
- Instituting or defending a suit, prosecution, or legal proceedings on behalf of the company.
- Carrying on business in the name of the company until the windup is satisfied.
- Selling immovable property at public auction or through a private contract.
- Raising the security on assets of the company.
- All other tasks required of winding-up a company including liquidating all the assets.
The liquidator can pay any class of creditors as well as create agreements and compromises with other creditors to satisfy the liability. The liquidator also has the right to perform the following actions without needing to seek special provisions from the court.
- Execute all deeds and receipts from the company for use under the company seal.
- Inspect records and returns of the company.
- Prove rank and claim of insolvency for any balance against their estate and receive dividends from the insolvencies.
- Draw, accept, make, or endorse bills of exchange or promissory notes on behalf of the company.
- Take out letters of administration for any deceased contributory and act in their name to obtain payment for money due from their estate.
- Appoint a qualified agent to perform business duties which they are unable to perform themselves.
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