In general sense, liquidation is the process of closing company’s business voluntarily or involuntarily. The shareholders of a company may voluntarily liquidate the company either by deciding to voluntarily liquidate a company in the special general meeting or through the provisions of liquidation mentioned in memorandum of association or article of association or in the consensus agreement.
Under the following conditions, the company can be voluntarily liquidated:
- If a company is able to pay all of its debts or liabilities.
- Company is not under the insolvency proceedings, or is free from any application made for the review of insolvency of the company under the prevailing law on insolvency.
- Written declaration made by the directors of the company after due inquiry, stating that the company is able to pay off all of its debts and other liabilities and that the debts and liabilities to be paid on behalf of such company can be paid up or can be fully settled in any other process within one year from the date of the adoption of the resolution to liquidate the company.
- If the written declaration made by the directors was presented in the Special General Meeting (SGM), called to discuss on the liquidation matter or it was made at the time of SGM called to discuss matters on liquidating the company.
Appointment of liquidator and auditor :
Once decision is made to liquidate a company, it needs to decide on appointing a liquidator and an auditor for carrying out liquidation process as per the law. Appointment shall be done as mentioned below:
- The practitioner licensed shall be appointed as a liquidator and shall fix their remuneration for the service rendered. Company need to appoint an auditor along with the liquidator. As per the necessity company may appoint more than one liquidator or auditor.
- Company needs to inform OCR about the appointment of a liquidator no later than seven days after the date of such appointment.
- Directors and officers of the company shall be relieved from their office and all their rights and powers with respect to the operation and management of the company shall be exercised by the liquidator.
- The service of all the employees of a company shall beterminated after the liquidator takes on the charge of the company. However, liquidator may decide to retain or appoint necessary employees for his/her support and assistance.
- Liquidator shall complete the liquidation proceedings within the period of time as mentioned at the time of appointment. If the proceedings could not be completed within the predetermined period of time, a reasonable time limit may be extended for its completion.
Notice to be Given :
- Company shall notify about the appointment of liquidator to OCR, no later than seven days from the date of such appointment.
- Liquidator shall publish a notice in the national daily newspaper stating that the given company is in the process of being liquidated. Concerned party may contact if there are any liabilities to be paid by the company, within 35 days of publishing such notice.
Rights and duties of Liquidator :
After the appointment of liquidator, liquidator shall exercise all of its rights and duties under the prevailing insolvency and other related laws, without prejudice.
- The liquidator has right to take control of all the properties, accounts, records, and documents of the company once the liquidator commences the liquidation proceedings.
- If liquidator thinks that any director, employee or shareholder of a company has committed a fraud or deception against the company, the liquidator holds the right to take necessary legal action against such person in accordance with the prevailing law.
- After commencing the liquidation proceedings of a company, if liquidator is satisfied that the company is unable to pay debts required to be paid or discharge liabilities required to be discharged in full then, the liquidator shall make an application for review of insolvency of the company in accordance to the prevailing law on insolvency.
- Shall submit the statements and accounts of income and expenditure in the course of liquidation every six months at OCR.
- Shall inform the shareholders of the company about the details and progress in terms of liquidation every six months.
- Shall pay the debts and other liabilities of all the creditors of the company by recovering all properties and amounts that needs to be recovered on behalf of the company.
- Once the creditors are paid, the liquidator shall present a proposed report related to the distribution of the remaining properties of the company before the shareholders by calling a general meeting.
- Upon receiving the consent of shareholders holding at least 75% of paid up share capital on the proposed report, the payment shall be made to the shareholders accordingly.
- After the successful completion of liquidation proceedings, the liquidator shall prepare a report on the properties recovered, payments made to the creditors, and distribution made to the shareholders on behalf of the company and submit the same to the OCR certifying that the company has been liquidated.
- After receiving a report of liquidation of a company made by the liquidator, OCR shall issue an order to cancel the registration of the company.
- OCR shall remove the name of such company from the company register and publish in a national daily newspaper about the same. Record of such company that has been liquidated shall be maintained by OCR.
- If found that there is any irregularity in respect of liquidation proceedings carried out by the liquidator then, the shareholders or any creditor of a company may file a complaint in the court against such matter within 15 days of the receipt of such information.
Note: Commencement of voluntary liquidation proceedings of the company shall not prevent the creditors who have lend loans against the security of any company’s property from exercising their rights to use and manage such secured property, in any manner, under prevailing law.
Required Documents :
- Minutes for voluntary liquidation of a company passed by Special General Meeting of a company, along with the appointment of liquidator and the auditor.
- Audit Report of the current fiscal year
- Report prepared by Liquidator confirming that the company has been liquidated.