Unit 4: Liquidation of companies

Liquidation (winding up) is the process of ending a company's life: its assets are realised, liabilities paid and any surplus distributed to members. It can be by the tribunal (NCLT) or voluntary (under the Insolvency and Bankruptcy Code, 2016). Contributories are persons liable to contribute to the assets of a company on winding up — present members (A list) and past members within one year (B list), up to the unpaid amount on their shares.

The statement of affairs shows the estimated realisable value of assets and the liabilities of the company at the date of winding up, in the prescribed form. The deficiency/surplus account explains how the deficiency (or surplus) arose — losses, dividends paid, capital and reserves.

The liquidator's final statement of account is a receipts and payments account showing cash realised from assets and payments in the legal order. Preferential payments traditionally include government taxes due within twelve months, wages and salaries for up to four months (subject to limits), accrued holiday pay and employees' state insurance and PF dues; under the IBC, the waterfall in Section 53 applies.

The liquidator's remuneration is usually a percentage of assets realised and/or of the amount paid to unsecured creditors (including preferential creditors).

A receiver is appointed by debenture holders (or the court) to take possession of assets charged as security, realise them and pay the debenture holders; any balance is handed over to the liquidator.