Note on Reorganization and liquidation of a company

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liquidation of a company:

A liquidation is an event that usually occurs when a company is insolvent, meaning it cannot pay its obligations as and when they come due. The company’s operations are brought to an end, and its assets are divvied up among creditors and shareholders, according to the priority of their claims. Liquidation is the process of selling off all the assets (when a company is insolvent) , distributing any remaining funds to shareholders, settling its liabilities, and closing it down as a legal entity. The liquidation process is a possible outcome of loss, which a company enters when it does not have sufficient funds to pay its creditors (liabilities exceed assets). Liquidation can be voluntary or involuntary (compulsory). A petition to liquidate a company can be made to the applicable court by creditors who have not been paid by the company. If granted by the court, the business will involuntarily enter to failure.

There are two types of liquidation:

  1. Compulsory
  2. Voluntary

Compulsory liquidation: A company may be liquidated compulsory by order of office of company registrar. In the given the following condition, the company will go into compulsory liquidation,

  • If default is made in delivering the statutory report to the registrar.
  • If the company does not commence its business within a year for its incorporation.
  • If the number of shareholders falls below seven.
  • If the audit reports is not submitted to the registrar office.
  • If statement of the annual meeting is not submitted to the registrar office.
  • If the operating of the company is against the law.
  • If the office has reasonable ground to believe that the company is not in an operation condition in or is not carrying on its business.
  • If the company may fill petition to be wound up by the court.

Voluntary liquidation:By the special resolution of the general meeting a company may go to the voluntary liquidation. Voluntary liquidation can be on following circumstances,

  • If the mentioned period is expired this has been mentioned in company’s articles and memorandum.
  • If the liabilities of the company exceed the total assets.
  • If the company suffers from loss continuously for several years.
  • If the company requires being dissolved for any other reason.

Right of liquidator:

  • To take legal action in the name of the company or defend it on behalf of the company.
  • Make a call on share not fully paid up and settle all debts and liabilities of the company.
  • To auction or sell all movable and immovable assets of the company if necessary.
  • To issues, approves or endorse promissory notes and bill of exchange in the name of a company.
  • To settle the loans of the creditor.
  • To meet the expenses incurred in the liquidation, he has right to mortgaging the assets of the company with prior approval of the office.
  • To make an agreement to the creditor with the personal who make a claim as a creditor.
  • Use necessary staff to help him and assist if necessary.
  • He/she has right to claim for remuneration after completion of the liquidation of the company.
  • He/she has right to take custody of all of the books of account records and asses to which the company has its title.

Duties of liquidator

  • Duties of notice: The first duty that is assigned to liquidator is that of giving notice of his appointment as a liquidator. It provides that wherein a necessarily winding up a person other than the Official Receiver is appointed Liquidator, such person shall not be capable of acting as liquidator until he has notified his appointment to the Registrar and given satisfactory security, if any, for the good performance of his functions. Likewise, in a voluntary winding up the liquidator must, within fourteen days from his appointment, deliver to the Registrar, for registration, a notice of his appointment. Moreover; all letters, invoices or orders issued must describe the company as undergoing liquidation.
  • Duty to keep certain financial and administrative records: The liquidator is obliged to keep proper books of administrative and account records. In terms of Section 240 the liquidator in a compulsory winding up must keep proper books in which he is to record all the time of proceedings at meetings and in which he is to put down all other subject matters which may be prescribed by the Court or Act. These books may also be inspected by any creditor or contributory subject to the Court’s control.
  • Duty to hold certain meetings: Liquidators in a voluntary liquidation must call a General Meeting of the company if the winding up continues for more than a year and they are also compelled to call a General Meeting of the company at each succeeding period of 12 months or at the first favorable date within three months from the end of the period of twelve months or within such longer period as the Registrar may allow during the period of this meeting, the liquidator is to lay an account of his acts and dealings and of the conduct of the liquidation process during the preceding 12 months, in which he should compulsorily include a summary of receipts and expenditure.
  • Duty to provide information: This duty is owed to the creditors and contributors to the Official Receiver and where the winding up continues for more than a year to the Registrar. Liquidators are to inform creditors and contributors of the progress of the winding up procedure. This has to be done by the holding of a number of meetings. We have seen that the liquidator is compelled to hold meetings at the beginning of the liquidation procedure and at the end of the liquidation process. Moreover, in a case of a voluntary winding up, a meeting must be held if the liquidation takes more than a year to complete. Creditors and contributors may also request meetings. However, this general power is accessible only in case of a Compulsory winding up and may be exercised when the creditors or contributors so resolve or where the request is made in written by one-tenth in value of the creditors and contributors.
  • Duty to examine the conduct of officers of the company: The liquidator is appointed, a duty to investigate the conduct of the company’s past and present officers and to consider whether they are guilty of any wrong conduct in managing the company’s tasks. The liquidator may obtain all information which he reasonably needs in the course of winding up and consequently all officers of the company are obligated to inform him of any correspondent issues and in a case of default they will be committing an offense.
  • Duty to get in and distribute the property of the company: The fundamental duty of the liquidator is that the recovery and realization of the assets and all his powers are executed to ensure the effective discharge of this duty. The liquidator must regain the assets of the company for the gain of the creditors and ultimately the members and he must realize the same so as to provide the best possible distribution.

references:

lawteacher.net. (n.d.). Retrieved from http://www.lawteacher.net/: http://www.lawteacher.net/free-law-essays/business-law/duties-and-obligations-of-a-liquidator-business-law-essay.php

out-law. (2011). Retrieved from out-law.com: http://www.out-law.com/topics/financial-services/restructuring/corporate-insolvency-the-basics/

 A company may be liquidated compulsory by order of office of company registrar. In the given the following condition, the company will go into compulsory liquidation,

  • If default is made in delivering the statutory report to the registrar.
  • If the company does not commence its business within a year for its incorporation.
  • If the number of shareholders falls below seven.
  • If the audit reports is not submitted to the registrar office.
  • If statement of the annual meeting is not submitted to the registrar office.
  • If the operating of the company is against the law.
  • If the office has reasonable ground to believe that the company is not in an operation condition in or is not carrying on its business.
  • If the company may fill petition to be wound up by the court.

Right of liquidator:

  • To take legal action in the name of the company or defend it on behalf of the company.
  • Make a call on share not fully paid up and settle all debts and liabilities of the company.
  • To auction or sell all movable and immovable assets of the company if necessary.
  • To issues, approves or endorse promissory notes and bill of exchange in the name of a company.
  • To settle the loans of the creditor.
  • To meet the expenses incurred in the liquidation, he has right to mortgaging the assets of the company with prior approval of the office.
  • To make an agreement to the creditor with the personal who make a claim as a creditor.
  • Use necessary staff to help him and assist if necessary.
  • He/she has right to claim for remuneration after completion of the liquidation of the company.
  • He/she has right to take custody of all of the books of account records and asses to which the company has its title.

Duties of liquidator

  • Duties of notice
  • Duty to keep certain financial and administrative records
  • Duty to hold certain meetings
  • Duty to provide information.
  • Duty to examine the conduct of officers of the company
  • Duty to get in and distribute the property of the company  

Types of liquidtion

  1. Compulsory
  2. Voluntary
.

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