Liquidation Process

Liquidation Process

Liquidation, the process by which a limited liability company ends its legal existence; often called the 'winding up'.

Insolvency due to changes in market conditions, inefficient management or other reasons is the principal cause of liquidation.

The Companies Act, 2008, provides for three methods: (a) compulsory, by Order of the Court; (b) voluntarily, by the company itself; (c) voluntarily, by the creditors. If a company is solvent, Its directors may file a Declaration of Solvency with the Registrar of Companies and the members may then decide to wind up and appoint a liquidator to conduct the winding up.

If the directors cannot file a Declaration of Solvency, they must call a meeting of the creditors at which a statement of affairs must be presented and the resolution for voluntary winding up proposed. Both the creditors and the members may nominate a liquidator, but if their nominees differ the creditors' nominee is appointed. The creditors may also appoint a committee of inspection. This type of liquidation is called a creditors' voluntary winding up.

Winding up by the court is usually adopted at the request of a creditor who has been unable to obtain payment from the company. The Official Receiver is appointed provisional liquidator, and his appointment may be confirmed or he may be replaced at the first meeting of the creditors.

A liquidator exercises wide powers and has many duties and responsibilities. He realizes all the company's assets and uses the proceeds to pay creditors. If the company is solvent he distributes the surplus to members.

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