Steps To Liquidate A Company

  • Blog|Income Tax|
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  • By Taxmann
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  • Last Updated on 14 December, 2021

What is Company Liquidation?

Simply speaking, ‘liquidation’ of a company implies the legal process of ending the business of it. In the next part of the process, the legalities also include making the distribution of assets owned by the Company. Usually, this occurs when the Company is bankrupt. As bankruptcy also means the inability of the Company to pay its obligations, the legal process also directs to sell its assets to settle the dues to its creditors and shareholders. The settlement of the dues takes place on the priority of their claims. As the matter of dissolution of the Company goes to the tribunal, the latter would pass a winding up order. It could also direct to appoint a liquidator. 

Step-1: Call a meeting of the board of directors

First of all, the Company would have to call a meeting of the board of directors with the presence of majority of members in it. They would pass a resolution for the winding up of the Company. They would have to prepare a statement in an affidavit that a complete inquiry has taken place about the debts taken by the Company. The Company would pay all the debts from the proceeds of sale of its assets.  The affidavit would also contain that the liquidation of the Company is not taking place to defraud any person (applicable under Section 59(3) (a) of the Insolvency Code 2016).

Step-2: Convene a meeting of Shareholders

Secondly, the Company would call a meeting of the shareholders within 4 weeks of making of the statement. There, the Company would take the decision for the appointment of a liquidator. The details for appointment of the liquidator would get mentioned in the resolution made in the meeting. The liquidator would make every effort to finish the work of liquidation within 12 months from the date of commencement of liquidation. He would keep the physical or electronic copy of all the important documents and papers for next 8 years after dissolution of company.

Step-3: Approval of the Creditors

When the Company owes any debts to different persons, creditors constituting two-third of the entire debt would have to give their consent in writing within 7 days of making of the resolution by the shareholders for liquidation of the Company. 

Step-4: A Public Statement by the liquidator

The liquidator shall make a public announcement in FORM-A of Schedule-I within 5 days of commencement of his duties.  The public statement shall make a request to all the stakeholders to give their claims within 30days from the date of commencement of liquidation.  The announcement of this would get published in one leading regional and English newspaper. 

Step-5: Proceedings by the liquidator

The liquidator would submit a report to the Company within 45 days of date of commencement of liquidation. He would keep records of registers and books concerning the process of liquidation. He would make verification of all the claims made by creditors for getting their dues. 

Step-6: Payment of money to the bank account

The liquidator would open a bank account in the name of a corporate person for the payment of money due to the creditors of the Company. 

Step-7: Preparation and submission of final report

At length, the liquidator would make it final report. He would mention all import facts concerning liquidation of the Company in the report. After complete liquidation of the Company, the liquidator would submit his final report to NCLT in Form-1 about the complete dissolution of the Company.

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