12.18.9 (Liquidators)

The commencement of winding up of a company does not put an end to the existence of the company. Its assets are to be realized and distributed among the debenture holders, creditors, shareholders etc. For the purpose, somebody has to act as an agent of the company. Such agent is called liquidator. For the purpose of filing Income Tax Return for the income earned during the winding up it has been held that the liquidator will be regarded as principal officer of the company (Mysore Spun Silk MiIIs Ltd.).

Rules relating to their appointment, rights, powers and duties can be discussed under the following heads: 1. In compulsory winding up.2.In voluntary winding up. 3. In voluntary winding up subject to supervision of the court.

Liquidators in compulsory winding up

Appointment official liquidator. On a winding up order being made in respect of company, the official liquidator, by virtue of his office becomes the liquidator of the company (s.449).However, the court has no power to appoint private persons as

liquidators. An official liquidator is attached to each High Court and is appointed by the Central Government. The 'Official Receiver' attached to District Court for insolvency purposes shall be the official liquidator attached to the District Court (s.448).

Provisional liquidator. After presentation of the petition but before the hearing, Application may be made to the court by the company or creditors or contributories to appoint a provisional liquidator to safeguard the assets pending the hearing. The powers of a provisional liquidator are the same as those of a liquidator unless Limited by the court. As soon as winding up order is made, the provisional liquidator becomes the liquidator of the company (s.450).

Committee of inspection to act with Liquidator. (already explained).

Powers of liquidator (s.457). The 'Liquidator' can exercise certain powers with the sanction of the Court; he also has certain powers which he can exercise on his own i.e., without the sanction of the court. These are as follows:

(A) With the sanction of the court. The liquidator shall have power to:(i)institute or defend any suit, prosecution, or other legal proceeding, civil or criminal, in the name and on behalf of the company; (ii) to carry on the business of the company so far as may be necessary for the beneficial winding up of the company; (iii) 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 or part thereof to any person or body corporate; (iv) to raise any money required on the security of the assets of the company; (v) to do all such other things as may be necessary for winding up of the affairs of the company and distribution of its assets; (vi) to appoint an advocate, attorney or pleader entitled to appear before the court to assist him in the performance of his duties (s.459); (vii) to compromise calls, debts and other pecuniary liabilities with contributories or debtors and take any security in discharge of any such claim and give a complete discharge in respect thereof (s.546).

The court may, by order, provide that the liquidator may exercise any of the above powers without the sanction or intervention of the court. However, it shall still be subject to control by the court (s.548).

(B)  Without the sanction of the court [s.457(2)]. The liquidator is empowered to exercise the following powers without obtaining the sanction of the court (i) to do all acts and to execute, in the name and on behalf of the company, all deeds, receipts and other documents and for the purpose to use when necessary the company's seal; (ii) to inspect the records and returns of the company on the files of the Registrar without payment of any fee; (iii) to prove, rank and claim in the insolvency of any contributory, for any balance against the estate and to receive dividends in the insolvency, in respect of that balance, as a separate debt due from the insolvent and ratably with the other separate creditors; (iv) to draw, accept, make and endorse any bill of exchange, promissory note or hundi in the name and on behalf of the company (v) to take out, in his official name, letters of administration to any deceased contributory and to do in his official name any other act necessary for obtaining payment of any money due from  a contributory of his estate which cannot be conveniently done in the name of the company; (vi) to appoint an agent to do any business which the liquidator is unable to do himself.

Duties of liquidator. The principal duties of a liquidator may be summarised as

follows:

1. He must conduct equitably and impartially all proceedings in the winding up according to the provisions of the law and must perform such duties in reference thereto as the court may impose (s.451).

2. He must bring into his custody and control the property of the company (s.a56).

3. He must submit a preliminary report to the court, as to: (a) the amount of capital issued, subscribed and paid-up and the estimated amount of assets and liabilities, giving separately, under the heading of assets particulars of (i) cash and negotiable securities; (ii) debts due from contributories; (iii) debts due to the company and securities, if any, available in respect thereof; (iv) immovable and movable properties belonging to the company and (v) unpaid call; (b) if the company has failed, as to the cause of the failure; and (c) whether in his opinion further inquiry is desirable as to any matter relating to the promotion, formation, or failure of the company or the conduct of the business thereof.

This report must be made, as soon as practicable after the receipt of the statement of company's affairs, but not later than 6 months from the date of the winding up order. In his report he may also state, if he thinks fit, whether in his opinion any fraud has been committed in connection with the promotion, formation or conduct of the company on the basis of such report a public examination those person may be conducted (s.455).

4.   Within 2 months from the date of the direction of the court, the liquidator must call a meeting of the creditors for determining the persons who are to be members of the Committee of Inspection, if such committee is to be appointed.

Within 14 days of the meeting of the creditors the liquidator must call a meeting of the contributories to consider the decision of the creditors (s.464).

5. He must keep all sums received by him, on behalf of the company into some scheduled bank, unless the court otherwise allows payment in a non-scheduled bank (s.553).

6. The liquidator shall keep, in the manner prescribed, proper books in which he shall cause entries or minutes to be made of proceedings at meetings and of such other matters as maybe prescribed (s.451).

7. He must, at least twice in each year present to the court an account of his receipts and payment as liquidator. The account must be in the prescribed form and must be made in duplicate. The court gets the account audited, keeps one copy thereof in its records and delivers the other copy to the Registrar for filing. Each copy shall, however, be open to the inspection of any creditor, contributory or person  interested. The liquidator must also send a printed the copy of the accounts so audited by post to every creditor and to every contributory (s.462).

Liquidators in voluntary winding up

            (I)  in member’s voluntary winding up the following point  have already been explain: (a) appointment and remuneration; (b) Notice of his appointment to registrar; (c) Duty to call creditor’s meeting in case of insolvency; (d) Duty to call general meeting every year; (e) Duty to call final meeting. 

            (ii)  In Creditors’ Voluntary Winding up the following point have already been explained: (a) appointment; (b) Remuneration; (c) Duty to call meeting of the creditors at the end of each year; (d) Duty to call meeting.

Common point as regards liquidators in voluntary winding up

Restriction on appointment. A body corporate cannot be appointed as a voluntary liquidator and any such appointment would be void. If a body corporate acts as a liquidator, that body corporate, its director or manager shall be punishable with fine upto Rs 1,000 (s.513).

 Further, any person who gives or give or offers to any member or creditor of a company any gratification whatever with a view to: (a) securing his own appointment or nomination as the company’s liquidator, (b) securing or preventing the appointment or nomination of some person other then himself, as a liquidator of the company, shall be punishable with fine upto Rs 1,000 (s.514).

Power of court to appoint and remove a liquidator (s.515). 1. If for any cause whatever, there is no liquidator acting, the court may appoint the official liquidator or any other person as a liquidator; 2. The court may, on cause shown, remove a liquidator and appoint Official Liquidator or any other person as a liquidator in place of  the removed liquidator; 3. The court may also appoint or remove a liquidator on the appointment made by the Registrar in this behalf;4. If the official Liquidator is appointed as liquidator, the remuneration to be paid to him shall be fixed by the court and shall be credited to the central government. 

Notice by liquidator (s.516).Within 30 days after his appointment, the liquidator must publish in the official gazette and deliver to the Registrar a notice of his appointment in the prescribed from, other wish a punishment of Rs50 for every day of default shall be attracted.

Power of liquidator (s.512)

(A) With the sanction of the special resolution (in case of member’ voluntary winding up) and that of the court or committee of inspection or creditors (in the case of creditors’ voluntary winding up ) the liquidator may exercise the following power : 1. To institute or defend any suit, prosecution or other legal proceedings, civil or criminal, in the name and on behalf of the company: 2. To carry on the business of the company so far as may be necessary for the beneficial winding up of company; 3. To sell immovable and movable property and actionable claims of the company; 4. to raise, on the security of the assets of the company, any money required.

(B) However the following powers which are exercisable by the liquidator in compulsory liquidation (without any sanction) can be exercised without any sanction: L. to execute all deeds, receipts and other documents under the seal of the company; 2. to draw, accept, make and endorse any bill of exchange, hundi or promissory note in the name and on behalf of the company; 3. to prove, rank and claim in-the insolvency of the contributory;4. to inspect the record of the company on the file of Registrar of company, without making any payment; 5. to exercise the the court of settling the list of contributories; 6. to exercise the power of the court of making calls; 7. to do any other act necessary for obtaining  payment of any money due from a contributory; 8. to call general meeting of the company, for any purpose he may think fit.

The liquidator must pay the debts of the company and adjust the right of the contributories among themselves. Where several liquidators are appointed, they shall exercise the above powers as determined at the time of their appointment or jointly, by at least two of them.

However any contributory or creditor may apply to the court, and the court may

control the exercise of the above powers by the liquidators.

Duties of liquidator. 1. to satisfy himself that the resolution appointing him was validly passed. 2. to send a notice of his appointment to the Registrar (s.516). 3. to take possession of company's assets and to see that they are intact.4. to prepare a list of debts and claims. 5. to settle the list of contributories fixed for the purpose. 6. to dispose off the assets of the company to the best advantage and collect, as far as practicable, all outstanding debts due to the company. Subject to preferential payments, the assets of the company shall be applied in satisfaction of list liabilities pari passu and to distribute among members according to their rights (s.511).7.to Apply the proceeds of realization in the prescribed manner. 8. To file returns at the End of the first year and then every 6 months during the continuation of the winding Up. 9. To convene the general meeting of the company at the end of every year, During liquidation and present the annual accounts threat (s.508). 10. at the end Of winding up, to call general meeting and lay before it the account of the winding Up and within one week of this meeting file a return with the Registrar (s.509).

Liquidators in voluntary winding up subject to the supervision of the court (s.s26).The Rules relating to his appointment, remuneration, powers and duties are same as in Case of voluntary winding up except that the court may impose some restrictions On his powers. Where restrictions do not apply, he shall exercise those powers Without the sanction or intervention of the court as if the company was being Wound up altogether voluntarily [s.526 (1)].

Status of a liquidator. In compulsory winding up, he is an officer of the court as well as an agent of the company. In voluntary winding up he is an agent of the company and not an officer of the court. He may be liable in damages to a creditor or contributory for breach of his statutory duty. But he is not a trustee of the company's assets. Property of the company is not vested in him. But, still, he is in a fiduciary position in relation to the company and will be held liable for Paying and invalid

claim.