Short essay on the Liquidation of Company




Liquidation of a company means, closing down the business activities of a company. A company resorts to liquidation on its own accord in case of total failure of operation of company. The failure of business may be caused due to insolvency of a company, obsolescence of the products made by a company, continuous losses or due to any other compelling reason.

Liquidation may also be compulsory if the company is involved in illegal business, due to the failure on the part of the company to secure minimum subscription, or due to delayed commencement of business beyond one year from the date of incorporation or due to suspension of business for one year or if the number of members falls below two members and seven members in case of private and public companies respectively.

Liquidation is a process of closing the business affairs of a company. It is also referred to as winding up of a company. A company's business is wound up by disposing the assets of a company and the money realised from sale of assets used for the payment towards creditors first and the balance if any, utilised to pay the members of the company.

Liquidation of a company can be done in 3 ways as specified in Companies Act, 1956. They are as follows:

1. Compulsory liquidation

2. Voluntary liquidation

3. Winding Up under the supervision of the court

Compulsory liquidation

A company is ordered to be closed as per the court's orders, in case of compulsory winding up. The court orders winding up of a company under the following circumstances.

a. When the company passes a special resolution in its general meeting to wind up the affairs.

b. When the Registrar orders for liquidation for not fulfilling statutory requirements like delivery of statutory report or failure to hold statutory meeting etc.

c. When the company fails to commence business activities within one year of obtaining the Certificate of Incorporation.

d. When the company does not carry on business activities for one full year .

e. When the number of members get reduced to less than two and seven in cases of private and public companies respectively.

f. If the company is not able to repay its debts and the creditors have filed a suit against the company.

g. If the court decides on a just and equitable manner to wind up a company.

The compulsory winding up is affected when a petition is made to the court, and an order is passed by the court. The court then appoints an official liquidator who supervises the liquidation process.

Voluntary liquidation is a process of terminating the business by a company, when the consent of members or creditors is obtained before liquidating. Members may decide to wind up a company as per the regulation in Articles or a special resolution passed for the purpose of liquidation.

Liquidation process is supervised by the liquidators appointed by mediators who would look into the interests of the company, its members and its creditors.

Winding Up under the supervision of the court

Sometimes the voluntary liquidation is done with the help of the supervision of the court at any time. This step is resorted to when the creditors or some affected parties feel that under the supervision of the court the interests of all the parties are protected, in the most just manner. The winding up is done under restriction imposed by the court. In case, the company has already appointed liquidators, the court may remove such unofficial liquidators and appoint new official liquidators in place of the unofficial liquidators.