Liquidation and Winding up of the Company

Last Updated On: Nov. 25, 2021, 10:25 p.m.
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LIQUIDATION AND WINDING UP PROCESS

 

What is Liquidation?

Liquidation process is the last stage where a creditors can recover their money from the company. The company has to undergo  resolution process and if it doesn’t work then the company goes for the liquidation process. he company first try to resolve the insolvency by Corporate Insolvency Resolution Process as per Chapter II of Part II of the code.

 

Who is an Liquidator?

According to section 5(18) of the Indian Bankruptcy Code, 2016, a “liquidator” means an insolvency professional appointed as a liquidator in accordance with the provisions of Chapter III or Chapter V of this Part, as the case may be.

Once the liquidator is appointed then all the powers of the Board, KMP and all the partners of the debtor will be ceased and will be vested to the liquidator.

Section 35 of the act provides the powers and duties of the liquidator, so that the liquidation proceeding gets complete.

 

WINDING UP:

Winding up is a process where the legal existence of company or LLP will be closed down.

  1. In this process the assets of the company are sold, all the liabilities of the companies are paid off and if there is any amount which is left then it is contributed to the contributories.
  2. Once the adjudicating authority are satisfied of the process then they will dissolve the company.
  3. During the process of winding up the powers of the company or LLP is with the liquidator and not with the partners or Board of Directors.
  4. Though, all the assets and liability will still belong to the company until the process is completed.
  5. Once the process is completed the company will lose its legal existence.

 

DIFFERENCE BETWEEN WINDING UP AND DISSOLUTION:

Winding up:

  • Winding up is the first stage of dissolving the legal existence of an entity. In this stage, the assets of the entity are sold, its liabilities are paid off and surplus, if any, is distributed amongst the contributories.
  • The winding up process is controlled by a liquidator. Creditors can prove their claims during winding up.
  • Winding up need not result in dissolution in all cases. A company which is in winding up can be taken over or amalgamated by any other entity or company which will result in the company coming out of winding up process and being handed over to the shareholders.

 

Dissolution:

  • Dissolution is the final stage after completion of winding up process and the legal existence of the entity comes to an end.
  • The dissolution can happen only by way of an order passed by the adjudicating authority.
  • Creditor cannot prove their claim since the entity no longer exists.
  • This is not possible in case of dissolution.
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