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LIQUIDATOR- POWER, DUTIES AND APPOINTMENT

Group-1, BM-B

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Winding Up

• Is a process whereby company’s life is ended and its property administered for the benefit of its creditors and members.

• Liquidator- An Administrator

• Similar to Insolvency of an Individual

• Compulsory v. Voluntary winding up

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Appointment of Liquidator[Sec. 448]

• Official Liquidator attached to the High Court or District Court becomes the liquidator of the company

• Conducts winding up and other duties as Court may impose

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Provisional Liquidator• Appointment– Court may appoint him after a petition is

presented but before making a winding up order

• Before appointment, company should be given opportunity to make its representation– Assets are in danger of being

diverted/misapplied– Non functioning state with debts accumulating

• Powers of a Provisional Liquidator– Same as Official Liquidator unless restricted by

Court– His acts will stand valid even if defect in his

appointment or qualifications is discovered afterwards

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Powers of liquidator [Sec. 457]

1. To institute or defend any suit, prosecution, or other legal proceeding, civil or criminal, in the name and on behalf of the company;

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Powers of liquidator [Cont.]

• Case: Gleitlager (India) (P) Ltd v Killick Nixon Ltd.

In computing the period for suits on behalf of the company, the period from the date of commencement of winding up to the date of the order and one year from the date of such order is excluded [S 458-A]. The extension is available only for suits on behalf of the company and not on behalf of the secured creditor

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Powers of liquidator [Cont.]

2. To carry on the business of the company so far as may be necessary for the beneficial winding up of the company;

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Powers of liquidator [Cont.]

• Case: Alexander Ward& Co. v Samyang National Co.

This has been held to include the power to ratify acts which, when in being, the company would have the power to perform. Summons for the arrest of a ship on behalf of a company which was without directors at the time, were ratified by the liquidator. The ratification was held to be binding

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Powers of liquidator [Cont.]

3. To sell the immovable and movable property and actionable claims of the company by public auction or private contract, with power to transfer the whole thereof to any person or body corporate, or to sell the same in parcels;– Bank of India v Bharat Electrical Industries Ltd:

confirmation of sale at a low price as against the original reserve price

• 3(i). to sell whole to the undertaking of the company as a going concern;

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Powers of liquidator [Cont.]

4. To rise on the security of the assets of the company any money requisite;

5. To do all such other things as may be necessary for winding up the affairs of the company and distributing its assets.

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Powers: Without the sanction

1. To do all acts in the name and on behalf of the company and to execute all deeds, receipts and other documents and for that purpose he may use, when necessary, the company’s seal

2. To inspect the records and returns of the company or the files of the registrar without payment of any fee

3. To prove and claim in the insolvency of any contributory for any balance against his estate and to receive dividends

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Powers: Without the sanction [Cont.]

4. Draw, accept or endorse any negotiable instruments on behalf of the company

5. To take out, in his official name, letters of administration on any deceased contributory and to so, in his official name, any other act necessary for obtaining payment of any money due from the contributory or his estate

6. To appoint an agent to so any business which the liquidator is unable to do himself

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Powers: Without the sanction [Cont.]

• A liquidator :– Can issue a notice to persons to submit

SOA (Statement Of Affairs)– Can call any person to record any

statement– Have separate bank account for each sale

of proceed– Has to present to the court twice a year

accounts

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Committee of Inspection• Court can order its appointment to act with the

liquidator

• The liquidator, within 2 months has to summon the creditors to decide its membership which is then confirmed in consultation with the contributories. In case of any conflict the matter goes to the court

• Maximum number of members is 12 and the quorum for meetings is one-third or 2 whichever is larger

• A seat becomes vacant if the member resigns, becomes insolvent or compounds or arranges with the creditors or is absent for more than 5 meetings consecutively without any prior notice

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Miscellaneous Powers of Liquidator

• Liquidator can exercise powers on the following occasions:

Winding up Sanction of

1) Tribunal Tribunal

2) Voluntary Special Resolution

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Miscellaneous Powers of Liquidator

• Payment of a class or classes of creditor in full

• Compromise or arrangement with creditors

• Compromising any call, or liability to call, debt and any claim

• Settling all questions relating to or affecting the assets of the company or its winding up.The liquidator may do so on mutually

agreeable terms and take any security for the discharge of call, debt, liability or claim

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Position of Liquidator

• A liquidator:– Have to take into custody property of the

company– Keep proper books – Keep money in special accounts in scheduled

bank to be entitled “the liquidation account of…”– Should not hold money for more than 10 days.– A n Individual shareholder or creditor cannot sue

him for delay of payments

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Disclaimer of Onerous Property[Sec. 535]

• Onerous Property ≈ White Elephant– Land burdened with covenants– Shares in companies– Unsaleable property– Unprofitable contract

• Duty of the court to help liquidator to get rid of “Onerous Property”

• Case: Raka Corpn (P) Ltd.

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Disclaimer of Onerous Property

• Should be in writing signed by the liquidator• Made within 12 months of commencement of

Winding up• Disclaimer determines:

– Rights, Interests and Liability

• Does not impact the rights or liabilities of a person

• Person interested in a property can require a liquidator

• Notice to be given within 28 days by the liquidator

• Case: Kaushalya Aggarwal v Punwire Paging Service Ltd.

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Report by Official Liquidator

• The Official Liquidator submits a preliminary report to the Tribunal within 6 months of receiving the Statement of Affairs

• The report contains:– Amount of issued and paid up capital– Estimated amount of assets and liabilities– If the company has failed, then causes of its failure– His opinion regarding further inquiry on• Promotion• Formation• Failure of the company• Conduct of the business

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Removal of Liquidator• Liquidator is subject to the control of Tribunal– Case: Dr. Hardit Singh Vs. ROC, 1978

• If liquidator does not respond to a creditor’s claim and proofs, this is held to be dereliction of duty sufficient to merit removal– Case: Amar Nath Krishan Lal Vs. Hindustan

Forest Co. Ltd., 1993

• A liquidator is not removable only on the ground that he was a shareholder or director or because the creditors or members in majority demand it– Case: M. Knight and Co Ltd Vs.

Montgomerie, 1892

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Law The OB-I Way!!

• A perfectly solvent company may be wound upA. TrueB. False

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• Within ___ days of the date of winding up order, a Statement as to Affairs of the company has to be submitted to the official liquidator.A. 30B. 21C. 28D. 90

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• Liquidators can exercises following without sanction from the courtA. To carry on the business of the companyB. To sale moveable and immoveable

propertyC. To inspect the records and returns of the

companyD. To raise the security of the assets of the

company

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• Committee of inspection should not consist of more than ___ members.A. 5B. 7C. 12D. 15

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• Which of the following can be regarded as an onerous propertyA. Unprofitable contractB. Shares or stocks in the companyC. Unsaleable propertyD. All of the above

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• When a person interested in property requires liquidator to decide disclaim on the property, the liquidator should provide a notice within ___ days.A. 28B. 21C. 60D. 30

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• In a voluntary winding up, the liquidator is not an officer of the court.A. TrueB. False

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• The shareholder or creditors can sue a liquidator for the damages for delaying payments.A. TrueB. FalseC. False under certain conditions

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Thank You!!