Liquidation of Company | 2 Different types of Liquidation of Company

Liquidation of a Company

          Liquidation means a firm or company winding up its operations. In general words we can say that liquidation refers to closing the business or firm.  Liquidation or winding up takes place when company or firm has failed to pay debts, order from court, when the members is reduced or even when company is running in loss and finding it hard to make profits or even when reconstruction is going to take place.

Types of Liquidation

There are two ways of winding up. They are

§  Forced winding up(When court orders)

§  Voluntary Winding Up (When Company BOD or Members pass the resolution)

Forced Winding Up (By Court)

          Winding Up by Court takes place when petition is filled in court by  the company, creditors, contributory, registrar or any person of central government as per section 243 followed by report from inspectors appointed to investigate the affair under section 235. After this court will hear petition and will make a interim or compulsory order  for winding up of company. Then creditors are asked to prove their claims.

Voluntary Winding Up

§  Voluntary Winding Up takes place when the fixed period has expired for which the company was created and this will take place by passing a ordinary resolution in general meeting.

§  Even company can windup by passing a special resolution.

Members Voluntary Winding Up

          In this there are two types of winding up one by members and creditors. When it’s by members majority of directors and Board members the director announces that the company will not be able to pay debts full in three years from the commencement of winding up.

Creditors Voluntary Winding Up

          Here declaration regarding the solvency of the company is not filed with the registrar but it is presumed that the company is insolvent. In such a case a meeting of all the creditors is called for the day or the day  next following day fixed company’s  general meeting for passing the resolution for winding up. With respect to the rights of preference creditors, the assets of the company on winding up is subjected for satisfaction of liabilities and any surplus amount is distributed among the members in accordance with their rights and interests.

Winding Up Under Supervision

A company is being wounded up voluntarily, the court may  order to continue voluntary winding up subject to supervision on any terms or conditions. The liquidators will continue to exercise all powers subject restrictions laid down by the Court.