Liquidation A company ceases to exist when it is dissolved. One of the ways to dissolve a company is to resort to the process of winding up or liquidation. It is not necessary that only insolvent company can be liquidated. Sometimes even solvent company is liquidated. Winding Winding up is of two types: Winding up by court and !oluntary winding up "#embers$ %reditors& Liquidation process '. (iquidation process begins with the appointment of of official liquidator who who is supposed to manage funds of liquidation process. ). %reditor can appoint a person to ta*e care of their dues. dues. Such person person is called the official receiver. +. ,otice given to the -O by the liquidator liquidator to submit the estimate of of assets and liabilities liabilities in prescribed form "form/0&. 1his statement statement is called statement of affairs. affairs. 1his must be verified by the resolution of member member and creditor by calling their respective meetings. 2. (iquidato (iquidatorr begins the process process of liquidating liquidating the assets assets and payment payment of liabilities. liabilities. /. (iquidator should should prepare Annual Statement Statement of affairs after ' year of of his appointment appointment giving giving details of assets and liabilities liquidated since his appointment. Such statement is prepared on annual basis. 3. #a*e a list list of - list list contribu contributory tory so that in in case of need calls calls can can be made made from them. them. 0. Submit (iquidator4s (iquidator4s final statement statement of account upon upon completion completion of liquidation process. Basically three statements are prepared: '. Statement Statement of liabili liabilities ties of 5-4 5-4 list contrib contributor utories ies ). (iquidato (iquidator4s r4s final final stateme statement nt of Account. Account. +. Statement Statement of of affairs affairs or eficiency eficiency Account. Account. Statement of liabilities of ‘B’ list contributories %reditors o$s on the A % Amount to be paid date of ceasing to be .shares shares share share to the creditor member s s ' ) Total (a) #aximum liability (b) ",o of shares X uncalled per share& mount paid 6a or b whichever is less7 !otes: '. %ontributories are are the present present shareholders or past shareholders shareholders of the company. company. 1here are two *inds of contributories: A list contributory 8 present shareholders
- list contributory 8 past shareholders. It must be noted that first the company ma*es a call on A list contributory. If they fails to pay then - list contributory are called for payment. ). Only those shareholders are ta*en who were members during one year bac* of the date of liquidation. 9or example if liquidation ta*ing place on ' st April )+ then person who were members from 'st April )) to ' st April )+. -ut if the member to whom they were originally allotted becomes insolvent then the person to whom the shares were transferred is also called list contributory. +. 1he amount outstanding to be paid to creditors is distributed in the ratio of respective shares. Liquidator’s final statement of ccount from"##to""# $r &articular 1o ban* a$c 1o cash a$c To assets realised "in sequence of liquidity&
1o realisation of assets specially pledged. xxx less: secured loan xxx 1o call on equity shareholders. 1o operational earning "i.e. if liquidator running the business than what he gets in the mean while&
mount
&articular -y legal expenses -y liquidator4s remuneration -y liquidation expenses -y debentures having floating charges ; Interest outstanding ; Interest accrued "only if solvent& -y preferential creditors -y unsecured creditors -y preference shareholders
%r mount
!otes: '. If the company is insolvent= then only the outstanding interest is ta*en and not the accrued interest. Accrued interest is ta*en only if the company is solvent. ). If nothing is given about preference share capital then we will assume it to be cumulative preference share capital and therefore arrears of dividend ta*en in the above statement.
+. A regular chec* will be maintained on cash balance. It should not happen that we are ma*ing payments without corresponding cash in hand. In the event of negative cash balance a deficiency account is prepared. '# Liquidators emuneration (anguage used for calculating liquidators remuneration can be any of the following si: a&
& on assets realised. b& & of all assets$ gross assets$ total assets c& & of payment to unsecured creditors. d& & of payment to secured creditors. e& & of payment to members$shareholders. f& & of payment to equity shareholders. ,ever include opening cash in hand$ban* for purpose of calculating liquidators remuneration until and unless it is specified in the question. *# Shares ha+e different paid up +alue but same face +alue ?ealise all assets and pay off all (iab. including
ssets specifically pled/ed (as per list B) 0stimated $ue to $eficiency ealisable secured ran1in/ as to 2alue creditors unsecured column
Surplus from assets specifically pledged
Surplus carried last
1otal assets available for preference creditors= %reditors secured by floating charge and unsecured creditors. Summary of /ross assets Dross realisable value of Assets specifically pledged xxx Other assets xxx 3ross assets xxx 3ross Liabilities (deducted from surplus or added to liab# deficiency) Secured creditors as per List B to the extent to which claims are estimated to be covered by assets specifically pledged
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?etirement benefits of employees without limit 9eanin/ of o+erridin/ preferential creditors: - 1his includes Wages to wor*ers under factory act 'E2F without limit. ?etirement benefits to wor*ers without limit. &reference di+idend: - it will be included with preference share capital if in arrears. %alls from partly paid shares (oss to be born by @SG "1otal @S% 8 -alance available after payment to unsecured C
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xxxx xxxx
1he deficiency$surplus shown by the above account must be the same as shown by the statement of affairs as regards members.
