Company Liquidation Unveiled: The Key Powers and Duties of a Liquidator

A company’s business is a cycle of continuous highs and lows. Even though a company enjoys perpetual succession, there may come a time when the company will have to stop its operations to pay off its debts. This halt can be either temporary (for a short period) or permanent.

The business ceases to exist in case the business halts permanently. The company pays off its debt by selling all its assets. This process of selling the company’s assets, collecting the money, and paying the debts is called Liquidation.

Who is a Liquidator?

The process of Liquidation in India is overlooked by the Insolvency and Bankruptcy Code, 2016. This act provides a detailed framework for the process of liquidation of Companies incorporated under the Companies Act, of 2013. This process explained above is carried out by a Liquidator.The Liquidator plays the lead once the process of Liquidation starts. 

Liquidators are entrusted with the responsibility of managing the liquidation process. To ensure legal compliance and safeguard the interest of creditors and other stakeholders, the liquidator is vested with various rights and duties mentioned under various laws. The blog covers most of these rights and duties that are essential to discharge the process of liquidation successfully.

Appointment of the Liquidator

A liquidator is appointed by the NCLT (National Company Law Tribunal) under the Insolvency and Bankruptcy Code. The National Company Law Tribunal appoints the liquidator when it passes an order for the liquidation of a body corporate under debt. 

Generally, the resolution professional who handles the corporate insolvency resolution process (CIRP) is appointed as the liquidator. The NCLT may appoint someone else if the professional does not deem fit for the task. The NCLT will ensure that the appointed professional is worthy of all the powers and duties mentioned below. 

Powers of the Liquidator

Control and Custody of Assets

One of the key tasks of a liquidator includes taking control and custody of all the assets, properties, effects, and actionable claims of the company undergoing liquidation. This includes all the assets and claims, whether tangible or intangible, wherever located.

Operational Control

The liquidator has the authority to carry on the sale operations of the company for the benefit of the liquidation. This power is important for maintaining the value of the company’s business until it is sold or otherwise disposed of.

Access to Information

The liquidator has the right to access all necessary information related to the body corporate going under liquidation. This includes financial statements, books of accounts, transactions and records, and other documents.

They can also ask any person associated with the company to provide any information or assistance in the liquidation process.

Settlement of Claims

The liquidator has the right to accept or deny payable as claimed by the creditor. The term creditor here includes both, secured creditors and unsecured creditors. The liquidator can also ascertain the value of claims admitted by the company or creditor. They can increase or decrease the value of the claim. 

Disposal of Assets

The liquidator has the right to sell the assets of the body corporation. This is to be done in a manner that maximizes the value of the assets. This can be done through public auctions, private sales, or other methods as deemed appropriate.

Legal Proceedings

The liquidator can start or defend any legal proceedings on behalf of the liquidating company.  This includes the power to settle or abandon any claim or suit with the approval of the NCLT.

Compromise and Arrangements

The liquidator can enter into compromises or arrangements with creditors and members of the company with the approval of the NCLT.

Investigate Fraudulent Transactions

The liquidator has the authority to audit the transactions that are deemed to be fraudulent or biased. He further gets the right to investigate. He can take appropriate action to reverse such transactions.

Duties of the Liquidator

Compliance with the Law

The liquidator must comply with all provisions of the Insolvency and Bankruptcy Code. They have to comply with other applicable laws, too. This includes procedural requirements, following timelines, and reporting obligations.

Custody and Preservation of Assets

The liquidator must take possession and protect the company’s assets. This includes safeguarding the assets from theft, damage, or unauthorized use.

Preparation of Reports

The liquidator is under the obligation to make and submit various reports to the NCLT, creditors, and stakeholders of the liquidating company. This is essential to keep the associated parties updated about the process. 

The reports that have to be submitted to NCLT include the preliminary report, asset memorandum, progress reports, and the final report on the completion of liquidation.

Claims Verification

One of the critical duties of the liquidator is to verify the claims submitted by creditors. This verification can be done by checking claims, seeking additional information if necessary, and accepting or rejecting the claims based on their validity.

Asset Valuation and Sale

The liquidator must ensure that the assets of the corporate debtor are valued and sold in a manner that maximizes their value. This includes conducting auctions, negotiating private sales, and complying with regulatory requirements for asset disposal.

Distribution of Proceeds

The liquidator is responsible for distributing all the proceeds he has received from the sale of assets. He distributed these proceeds to the creditors and other stakeholders by priority. 

This priority is mentioned in The Insolvency and Bankruptcy Code.This payoff includes distributing the proceeds to secured creditors, workmen dues, and other operational creditors in a fixed order and proportion.

Public Announcements

The liquidator must make all the necessary public announcements that invite claims from creditors and stakeholders. This makes sure that all potential claimants are allowed to submit their claims for verification and settlement within the prescribed period. 

Conclusion

As the Indian insolvency regime continues to evolve, the role of liquidators will remain crucial in maintaining the balance between creditor interests and the revival of businesses. With the increasing number of insolvency and liquidation cases, the need for skilled and competent liquidators is more significant than ever. 

By adhering to the legal framework and best practices, liquidators can contribute to a more efficient and fair insolvency resolution process in India. If you are looking for competent professionals to dissolve or register a business. Worry not! You have landed at the right place. Choose Lawgical Adda and get the best services today.