Liquidation of Companies: Notes | Advanced Accounting for CA Intermediate PDF Download

 Page 1


 
LEARNING OUTCOMES 
 
 
LIQUIDATION OF 
COMPANIES 
 
 
 
 
After studying this chapter, you will be able to: 
? Understand the definition of Winding up and its types. 
? Prepare Statement of Affairs as per the format prescribed by 
the Act. 
? Draw Deficiency account and will be able to point out the 
reasons for deficiency. 
? Distinguish between preferential payments and over-riding 
preferential payments. 
? Set an order of payment of all obligations. 
? Prepare Liquidator’s Final Statement of account. 
 
 
 
 
CHAPTER 
7 
Page 2


 
LEARNING OUTCOMES 
 
 
LIQUIDATION OF 
COMPANIES 
 
 
 
 
After studying this chapter, you will be able to: 
? Understand the definition of Winding up and its types. 
? Prepare Statement of Affairs as per the format prescribed by 
the Act. 
? Draw Deficiency account and will be able to point out the 
reasons for deficiency. 
? Distinguish between preferential payments and over-riding 
preferential payments. 
? Set an order of payment of all obligations. 
? Prepare Liquidator’s Final Statement of account. 
 
 
 
 
CHAPTER 
7 
 
 
7.2 ADVANCED ACCOUNTING 
 
 
 
 
 1. LIQUIDATION - INTRODUCTION 
A company comes into being through a legal process and also comes to an end by 
law. Liquidation is the legal procedure by which the company comes to an end. Thus 
a company being a creation of law cannot die a natural death. A company, when found 
necessary, can be liquidated.  
 2. DEFINITION OF WINDING UP 
As per Section 2 (94A) of the Companies Act, 2013, winding up means winding up 
under this Act or liquidation under the Insolvency and Bankruptcy Code, 2016, as 
applicable. 
Mode of Winding Up
On Inability to Pay 
Debts
Insolvency and 
Bankruptcy Code with 
its Regulations
Grounds other than 
inability to pay debts
Companies Act, 2013 
with Court Rules
Voluntary winding up
Upto 31st March, 2017
Companies Act, 2013 
with Court Rules
From 1st April, 2017
Insolvency and 
Bankruptcy Code with 
voluntary liquidation 
process Regulations.
 
Page 3


 
LEARNING OUTCOMES 
 
 
LIQUIDATION OF 
COMPANIES 
 
 
 
 
After studying this chapter, you will be able to: 
? Understand the definition of Winding up and its types. 
? Prepare Statement of Affairs as per the format prescribed by 
the Act. 
? Draw Deficiency account and will be able to point out the 
reasons for deficiency. 
? Distinguish between preferential payments and over-riding 
preferential payments. 
? Set an order of payment of all obligations. 
? Prepare Liquidator’s Final Statement of account. 
 
 
 
 
CHAPTER 
7 
 
 
7.2 ADVANCED ACCOUNTING 
 
 
 
 
 1. LIQUIDATION - INTRODUCTION 
A company comes into being through a legal process and also comes to an end by 
law. Liquidation is the legal procedure by which the company comes to an end. Thus 
a company being a creation of law cannot die a natural death. A company, when found 
necessary, can be liquidated.  
 2. DEFINITION OF WINDING UP 
As per Section 2 (94A) of the Companies Act, 2013, winding up means winding up 
under this Act or liquidation under the Insolvency and Bankruptcy Code, 2016, as 
applicable. 
Mode of Winding Up
On Inability to Pay 
Debts
Insolvency and 
Bankruptcy Code with 
its Regulations
Grounds other than 
inability to pay debts
Companies Act, 2013 
with Court Rules
Voluntary winding up
Upto 31st March, 2017
Companies Act, 2013 
with Court Rules
From 1st April, 2017
Insolvency and 
Bankruptcy Code with 
voluntary liquidation 
process Regulations.
 
 
 
7.3 
LIQUIDATION OF COMPANIES 
 
 3. WINDING UP BY TRIBUNAL 
As per section 270, the provision of Part I should apply to the winding up of a company 
by the Tribunal under this Act. 
Circumstances in Which Company May be Wound Up by 
Tribunal [Section 271] 
 
 4. PETITION FOR WINDING UP [SECTION 272] 
 
 
 
Winding Up 
Includes
Winding up under Companies Act, 2013
Liquidation under Insolvency and Bankruptcy Code, 2016
•(a) The company has resolved that the company be wound up by the Tribunal. The company has require to
pass special resolution.
•(b) The company has acted against the interests of the sovereignty and integrity of India, the security of
the State, friendly relations with foreign States, public order, decency or morality
•(c) The Registrar or any other person authorised by the Central Government by notification under this Act
can make an application to tribunal. The Tribunal is of the opinion that the affairs of the company have
been conducted in a fraudulent manner or the company was formed for fraudulent and unlawful purpose
or the persons concerned in the formation or management of its affairs have been guilty of fraud,
misfeasance or misconduct in connection therewith and that it is proper that the company be wound up.
•(d) The company has made a default in filing with the Registrar its financial statements or annual
returns for immediately preceding 5 consecutive financial years.
•(e) The Tribunal is of the opinion that it is just and equitable that the company should be wound up.
Circumstances
Petition for 
Winding 
Up to 
Tribunal 
can be 
made by
The Company
Any Contributory or Contributories
The registrar
Any person authorized by Central Government in that behalf
In case affairs of the company have been conducted in a Fraudulent manner, by the Central 
Government or a State Government.
Page 4


 
LEARNING OUTCOMES 
 
 
LIQUIDATION OF 
COMPANIES 
 
 
 
 
After studying this chapter, you will be able to: 
? Understand the definition of Winding up and its types. 
? Prepare Statement of Affairs as per the format prescribed by 
the Act. 
? Draw Deficiency account and will be able to point out the 
reasons for deficiency. 
? Distinguish between preferential payments and over-riding 
preferential payments. 
? Set an order of payment of all obligations. 
? Prepare Liquidator’s Final Statement of account. 
 
 
 
 
CHAPTER 
7 
 
 
7.2 ADVANCED ACCOUNTING 
 
 
 
 
 1. LIQUIDATION - INTRODUCTION 
A company comes into being through a legal process and also comes to an end by 
law. Liquidation is the legal procedure by which the company comes to an end. Thus 
a company being a creation of law cannot die a natural death. A company, when found 
necessary, can be liquidated.  
 2. DEFINITION OF WINDING UP 
As per Section 2 (94A) of the Companies Act, 2013, winding up means winding up 
under this Act or liquidation under the Insolvency and Bankruptcy Code, 2016, as 
applicable. 
Mode of Winding Up
On Inability to Pay 
Debts
Insolvency and 
Bankruptcy Code with 
its Regulations
Grounds other than 
inability to pay debts
Companies Act, 2013 
with Court Rules
Voluntary winding up
Upto 31st March, 2017
Companies Act, 2013 
with Court Rules
From 1st April, 2017
Insolvency and 
Bankruptcy Code with 
voluntary liquidation 
process Regulations.
 
 
 
7.3 
LIQUIDATION OF COMPANIES 
 
 3. WINDING UP BY TRIBUNAL 
As per section 270, the provision of Part I should apply to the winding up of a company 
by the Tribunal under this Act. 
Circumstances in Which Company May be Wound Up by 
Tribunal [Section 271] 
 
 4. PETITION FOR WINDING UP [SECTION 272] 
 
 
 
Winding Up 
Includes
Winding up under Companies Act, 2013
Liquidation under Insolvency and Bankruptcy Code, 2016
•(a) The company has resolved that the company be wound up by the Tribunal. The company has require to
pass special resolution.
•(b) The company has acted against the interests of the sovereignty and integrity of India, the security of
the State, friendly relations with foreign States, public order, decency or morality
•(c) The Registrar or any other person authorised by the Central Government by notification under this Act
can make an application to tribunal. The Tribunal is of the opinion that the affairs of the company have
been conducted in a fraudulent manner or the company was formed for fraudulent and unlawful purpose
or the persons concerned in the formation or management of its affairs have been guilty of fraud,
misfeasance or misconduct in connection therewith and that it is proper that the company be wound up.
•(d) The company has made a default in filing with the Registrar its financial statements or annual
returns for immediately preceding 5 consecutive financial years.
•(e) The Tribunal is of the opinion that it is just and equitable that the company should be wound up.
Circumstances
Petition for 
Winding 
Up to 
Tribunal 
can be 
made by
The Company
Any Contributory or Contributories
The registrar
Any person authorized by Central Government in that behalf
In case affairs of the company have been conducted in a Fraudulent manner, by the Central 
Government or a State Government.
 
 
7.4 ADVANCED ACCOUNTING 
Petition by Contributory 
? A contributory should be entitled to present a petition for the winding up of a 
company. 
? Shares in respect of which he is a contributory were either originally allotted to 
him or have been held by him for at least 6 months during the 18 months 
immediately before the commencement of the winding up and registered in his 
name or have transferred to him through the death of a former holder. 
 
Petition by Registrar 
The Registrar should be entitled to present a petition for winding up under section 
271, except on the grounds specified in section 271 (a) or (e). 
The Registrar should obtain the previous sanction of the Central Government to the 
presentation of a petition. The Central Government should not accord its sanction 
unless the company has been given a reasonable opportunity of making 
representations. 
Petition by Company  
A petition presented by the company for winding up before the Tribunal should be 
admitted only if accompanied by a statement of affairs in such form and in such 
manner as may be prescribed. 
A copy of the petition made under this section should also be filed with the Registrar 
and the Registrar should, without prejudice to any other provisions, submit his views 
to the Tribunal within 60 days of receipt of such petition. 
 5. VOLUNTARY WINDING UP 
After knowing about the modes of compulsory winding up of a company let us now 
discuss the modes of voluntary winding up. 
Contributory can file petition ignoring the following points
• He may be the holder of fully paid-up shares.
• The company may have no assets at all.
• The company may have no surplus assets left for distribution among the
shareholders after the satisfaction of its liabilities.
Page 5


 
LEARNING OUTCOMES 
 
 
LIQUIDATION OF 
COMPANIES 
 
 
 
 
After studying this chapter, you will be able to: 
? Understand the definition of Winding up and its types. 
? Prepare Statement of Affairs as per the format prescribed by 
the Act. 
? Draw Deficiency account and will be able to point out the 
reasons for deficiency. 
? Distinguish between preferential payments and over-riding 
preferential payments. 
? Set an order of payment of all obligations. 
? Prepare Liquidator’s Final Statement of account. 
 
 
 
 
CHAPTER 
7 
 
 
7.2 ADVANCED ACCOUNTING 
 
 
 
 
 1. LIQUIDATION - INTRODUCTION 
A company comes into being through a legal process and also comes to an end by 
law. Liquidation is the legal procedure by which the company comes to an end. Thus 
a company being a creation of law cannot die a natural death. A company, when found 
necessary, can be liquidated.  
 2. DEFINITION OF WINDING UP 
As per Section 2 (94A) of the Companies Act, 2013, winding up means winding up 
under this Act or liquidation under the Insolvency and Bankruptcy Code, 2016, as 
applicable. 
Mode of Winding Up
On Inability to Pay 
Debts
Insolvency and 
Bankruptcy Code with 
its Regulations
Grounds other than 
inability to pay debts
Companies Act, 2013 
with Court Rules
Voluntary winding up
Upto 31st March, 2017
Companies Act, 2013 
with Court Rules
From 1st April, 2017
Insolvency and 
Bankruptcy Code with 
voluntary liquidation 
process Regulations.
 
 
 
7.3 
LIQUIDATION OF COMPANIES 
 
 3. WINDING UP BY TRIBUNAL 
As per section 270, the provision of Part I should apply to the winding up of a company 
by the Tribunal under this Act. 
Circumstances in Which Company May be Wound Up by 
Tribunal [Section 271] 
 
 4. PETITION FOR WINDING UP [SECTION 272] 
 
 
 
Winding Up 
Includes
Winding up under Companies Act, 2013
Liquidation under Insolvency and Bankruptcy Code, 2016
•(a) The company has resolved that the company be wound up by the Tribunal. The company has require to
pass special resolution.
•(b) The company has acted against the interests of the sovereignty and integrity of India, the security of
the State, friendly relations with foreign States, public order, decency or morality
•(c) The Registrar or any other person authorised by the Central Government by notification under this Act
can make an application to tribunal. The Tribunal is of the opinion that the affairs of the company have
been conducted in a fraudulent manner or the company was formed for fraudulent and unlawful purpose
or the persons concerned in the formation or management of its affairs have been guilty of fraud,
misfeasance or misconduct in connection therewith and that it is proper that the company be wound up.
•(d) The company has made a default in filing with the Registrar its financial statements or annual
returns for immediately preceding 5 consecutive financial years.
•(e) The Tribunal is of the opinion that it is just and equitable that the company should be wound up.
Circumstances
Petition for 
Winding 
Up to 
Tribunal 
can be 
made by
The Company
Any Contributory or Contributories
The registrar
Any person authorized by Central Government in that behalf
In case affairs of the company have been conducted in a Fraudulent manner, by the Central 
Government or a State Government.
 
 
7.4 ADVANCED ACCOUNTING 
Petition by Contributory 
? A contributory should be entitled to present a petition for the winding up of a 
company. 
? Shares in respect of which he is a contributory were either originally allotted to 
him or have been held by him for at least 6 months during the 18 months 
immediately before the commencement of the winding up and registered in his 
name or have transferred to him through the death of a former holder. 
 
Petition by Registrar 
The Registrar should be entitled to present a petition for winding up under section 
271, except on the grounds specified in section 271 (a) or (e). 
The Registrar should obtain the previous sanction of the Central Government to the 
presentation of a petition. The Central Government should not accord its sanction 
unless the company has been given a reasonable opportunity of making 
representations. 
Petition by Company  
A petition presented by the company for winding up before the Tribunal should be 
admitted only if accompanied by a statement of affairs in such form and in such 
manner as may be prescribed. 
A copy of the petition made under this section should also be filed with the Registrar 
and the Registrar should, without prejudice to any other provisions, submit his views 
to the Tribunal within 60 days of receipt of such petition. 
 5. VOLUNTARY WINDING UP 
After knowing about the modes of compulsory winding up of a company let us now 
discuss the modes of voluntary winding up. 
Contributory can file petition ignoring the following points
• He may be the holder of fully paid-up shares.
• The company may have no assets at all.
• The company may have no surplus assets left for distribution among the
shareholders after the satisfaction of its liabilities.
 
 
7.5 
LIQUIDATION OF COMPANIES 
A company may be wound up voluntarily [Section 304
1
],— 
(a) if the company in general meeting passes a resolution requiring the company to 
be wound up voluntarily as a result of the expiry of the period for its duration, if 
any, fixed by its articles or on the occurrence of any event in respect of which the 
articles provide that the company should be dissolved; or 
(b) if the company passes a special resolution that the company be wound up 
voluntarily. 
Provisions of the Insolvency and Bankruptcy Code, 2016 
(1)  A corporate person who intends to liquidate itself voluntarily and has not 
committed any default may initiate voluntary liquidation proceedings under 
the provisions of this Chapter
2
. 
(2)  The voluntary liquidation of a corporate person shall meet such conditions 
and procedural requirements as may be specified by the Board. 
(3)  Voluntary liquidation proceedings of a corporate person registered as a 
company shall meet the following conditions, namely:— 
(a)  a declaration from majority of the directors of the company verified by 
an affidavit stating that— 
(i)  they have made a full inquiry into the affairs of the company and 
they have formed an opinion that either the company has no debt 
or that it will be able to pay its debts in full from the proceeds of 
assets to be sold in the voluntary liquidation; and 
(ii)  the company is not being liquidated to defraud any person; 
(b)  the declaration under sub-clause (a) shall be accompanied with the 
following documents, namely:— 
(i)  audited financial statements and record of business operations of 
the company for the previous two years or for the period since its 
incorporation, whichever is later; 
(ii)  a report of the valuation of the assets of the company, if any 
prepared by a registered valuer; 
 
1
Applicable until 31 March 2017; with effect from 1 April 2017, Section 59 of the Insolvency and Bankruptcy 
Code, 2016 is applicable. 
2
 Chapter V- Voluntary liquidation of corporate persons.