You need to sell off stocks, pay the due amount to creditors, and give the remaining assets to
shareholders or partners. Right. With our legal assistance, you can wind up your company
hassle-free and avoid paying unnecessary charges on compliance and audit.
Simply put, Liquidation is the process initiated by a company to close its operations. The company may decide to wind up due to various reasons such as unwillingness to continue with the operations, insolvency and so on. As the term suggests, liquidation of a company refers to liquidating the assets of the company. By initiating the liquidation process, the company may sell its assets to meet obligations and repay liabilities.
If a company is liquidated due to bankruptcy, the liquidator can sell its assets to repay all pending liabilities. The remaining balance, if any, after repayment to the creditors, gets distributed among the shareholders of the company.
Free from debts after liquidation: Once the liquidation process is over, the directors and all company officials are free from all creditor liabilities and pressure.
Avoiding legal action against the company:If the resolution is passed voluntarily by directors, they will neglect legal action taken by the court or the tribunal, and provide a platform to company directors to concentrate on other business opportunities.
Comparingly low cost charged for liquidation: The cost or expenses involved in the liquidation process is relatively low, as charges will be applicable on the sale of assets.
All lease agreements will be cancelled: If any company or entity has entered into a lease for a prescribed time, during the liquidation process, it will terminate all the terms and conditions of the lease. If any penalty has to be paid, it will be deducted from the sale of assets.
Advantages for creditors: After a prolonged struggle, creditors will benefit from the liquidation process as they will be eligible for a default payment, with respect to the proposition of credits given by all creditors.
Winding up of a private limited company can be done in 3 different ways. They are
If a company remains solvent (able to pay the debts) at the time of closure and its directors make a voluntary declaration for the same, it is termed as the Members’ Voluntary Winding Up. Such a declaration should have the following characteristics-
The following steps are necessary to carry out the process of Members’ Voluntary Winding Up-
if the solvency declaration is not made by the directors and submitted to the registrar, the company is presumed to be insolvent. In such a case, the creditors must meet (usually after the company general meeting) to pass the resolution for winding up and liquidation of the company.
The following steps are necessary to carry out the process of Creditors’ Voluntary Winding Up-
The statement of accounts must be submitted within a month before the submission of the application to wind up the company. This is a declaration to the Registrar of Companies that the contents of the application are only to be considered, and that the company has no other assets or liabilities.
Within a month of submitting the statement of accounts, the application must be submitted along with the documents mentioned above. Our representatives will guide you through the entire procedure.
It takes at least two to three months to complete the closure of your company, but it could take much longer, depending on the findings of the liquidator appointed.
The documents required for the closure of the company are;
Why is liquidation important?
Liquidation is important for the following reasons-
What causes a company to go into liquidation?
Some of the most prominent causes for a company to go into liquidation are-
What is the liquidation strategy?
The liquidation strategy refers to liquidating the assets of a company before winding up operations. By initiating the liquidation process, the company may sell its assets to meet obligations and repay liabilities.
As a part of the liquidation strategy, a liquidator is appointed to oversee the process of selling the company assets. The remaining balance, if any, after repayment to the creditors, gets distributed among the shareholders of the company.
What does liquidation mean for employees?
The liquidation marks the end of business operations by a company and this may lead to the unavoidable loss of jobs for the employees. However, the company administration may look to restructure the organization and save some (or all) of the jobs in the process. But, the employees will have the right to claim dues owed to them by the company.
Do employees get paid when the company goes into liquidation?
If the employer goes into liquidation, there will be no business continuity and the employees will be without a job. However, the employees will have the right to claim dues (salary, allowances, etc) owed to them by the company. If there are no funds with the insolvent company to pay the employees, they can approach the National Insurance Fund (NIF) for payments due.
How long does liquidation of a company take?
In general, the liquidation process of a company in India can take up to 2 years to complete, since the date of application, in case of compulsory liquidation. It may take less time for a voluntary liquidation process to complete. The duration may vary from company to company, depending on the complexity of the process involved.
What happens after the liquidation of a company?
After a company is liquidated, the liquidator can sell its assets to repay all pending liabilities. The remaining balance, if any, after repayment to the creditors, gets distributed among the shareholders of the company.
Can I be a director of a company after liquidation?
Yes, you can remain a director of the company after liquidation, but, you will not have any more control over its business affairs. You can set up and be the director of a new company. But, the new company cannot have the same/similar name to the liquidated company.
Can a company continue to trade when in liquidation?
No. A company should not do trading activities while undergoing liquidation. This is because the directors do not have any more control over their business affairs.
If the liquidator comes to know about any trading activity being undertaken by the directors, he can initiate prosecution against the directors.
Can I liquidate my own company?
No. You cannot liquidate your own company. Only the shareholders of a company can put it into voluntary liquidation. Then, a licensed insolvency practitioner will be appointed as a liquidator and only he can start the liquidation process.
Are directors personally liable for company debts?
Usually, directors are not personally liable for company debts. Therefore, if the company fails to pay off its debts and the creditors move court, the company assets are put to risk only and not the personal assets of the directors.
Can liquidation reverse?
Yes. One can reverse a Members’ Voluntary Liquidation (MVL). But, it’s not easy for the directors to do so, just by changing their minds. They can only do it by making an application to the concerned High Court and requesting an annulment of the said liquidation. The application has to be made within 6 years of the liquidation.
How do I claim money from a company in liquidation?
By initiating the liquidation process, the company assets are sold off by the liquidator to meet obligations and repay creditors. If you are a secured creditor, you will be at the top of the ‘payment hierarchy’ and will get the first preference while distributing the proceeds of the sale. On the other hand, if you are an unsecured creditor (suppliers, employees, and banks), you will be at the bottom of the ‘payment hierarchy’. Therefore, when you claim money from a company in liquidation, your claim will be processed by the liquidator according to your position in the ‘payment hierarchy’.
Can a director resign when a company is in liquidation?
Yes, he can. But, a director is not advised to resign from a company when it is under the process of liquidation. This is more so for a director if he has provided a declaration for solvency. However, if he resigns in an unavoidable situation, he doesn't need to file the DIR-12 Form as the status of the company is ‘under liquidation’.
Can the name of a dissolved company be used in the future?
When a company is dissolved and gets liquidated, the name is struck off from the company register. The name can be made available for other companies for future use.
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