When a company goes into liquidation, a liquidator is appointed to manage the affairs of the company and ensure that its assets are distributed fairly among creditors and shareholders. The liquidator plays a crucial role in winding up the company's affairs and completing the liquidation process.
In India, the powers and duties of the liquidator are governed by the Companies Act, of 2013, and the Insolvency and Bankruptcy Code, of 2016. In this article, we will discuss the powers and duties of a liquidator in India.
Who is a Liquidator?
The liquidator or insolvency expert oversees several stages, including the collection, preservation, and distribution of assets as well as the investigation and reporting of the details surrounding the insolvency of the business. Key company employees' authority is passed to the insolvency professional during these phases. The activities carried out during these phases add up to the recovery of bad debts.
The court appoints the liquidator in a compulsory liquidation or court liquidation. However, it differs between Members' Voluntary Liquidations (MVL) and Creditors' Voluntary Liquidations (CVL). For instance, in a Creditors' Voluntary Liquidation (CVL), the directors opt to wind down the company and launch a new one.
In this case, the procedure is started by the directors rather than the company's creditors or a judge. Therefore, an authorized insolvency practitioner will be hired and paid for by the directors or shareholders to serve as the liquidator, and creditors have the right to vote on the same appointment.
Appointment of Liquidator
The first duty of a liquidator is to ensure that they are properly appointed. The appointment of a liquidator can be made in several ways. In some cases, the court may appoint a liquidator, while in other cases, the creditors or shareholders may appoint a liquidator.
The liquidator must be a licensed insolvency professional or a chartered accountant with relevant experience in insolvency and bankruptcy proceedings.
Powers of Liquidator
The liquidator has several powers that are granted by the Companies Act, of 2013 and the Insolvency and Bankruptcy Code, of 2016. These powers enable the liquidator to manage the company's affairs, collect and distribute its assets, and carry out the liquidation process. Some of the key powers of the liquidator are discussed below.
Power to investigate
The liquidator has the power to investigate the affairs of the company and its directors. This includes the power to summon and examine witnesses, require the production of documents, and inspect the company's books and records.
Power to sell assets
The liquidator can sell the company's assets to generate funds to pay off creditors. This includes the power to sell assets such as property, plant and machinery, and inventory.
Power to initiate legal proceedings
The liquidator initiates legal proceedings on behalf of the company. This includes the power to sue debtors, defend the company against legal actions, and settle claims against the company.
Power to carry on business
The liquidator has the power to carry on the business of the company as long as it is necessary to complete the liquidation process. This includes the power to enter into contracts, incur expenses, and employ staff.
Power to distribute assets
The liquidator distributes the company's assets to its creditors and shareholders by the priority set out in the Insolvency and Bankruptcy Code, 2016. The liquidator must ensure that the assets are distributed fairly and by the law.
Duties of Liquidator
The liquidator has several duties that they must fulfil during the liquidation process. These duties are designed to ensure that the liquidation process is conducted fairly and transparently. Some of the key duties of the liquidator are discussed below.
Duty to act in the interests of creditors and shareholders
The liquidator must act in the interests of the company's creditors and shareholders. This includes ensuring that the company's assets are distributed fairly among creditors and shareholders and that the liquidation process is conducted in a transparent and accountable manner.
Duty to investigate
The liquidator shall investigate the affairs of the company and its directors. This includes conducting a thorough review of the company's books and records and examining the conduct of the directors and other officers of the company.
Duty to sell assets
The liquidator sells the company's assets to generate funds to pay off creditors. This includes ensuring that the assets are sold at fair market value and that the proceeds are used to pay off the company's debts.
Duty to report to creditors and shareholders
The liquidator must provide regular reports to the company's creditors and shareholders. These reports must include information about the progress of the liquidation process, the status of the company's assets, and the distribution of funds to creditors and shareholders.
Duty to maintain proper records
The liquidator must maintain proper records of all transactions related to the liquidation process. This includes keeping accurate financial records, maintaining a record of all communications with creditors and shareholders, and ensuring that all documents related to the liquidation process are properly filed.
Duty to act with due diligence
The liquidator acts with due diligence and cares throughout the liquidation process. This includes ensuring that all legal and regulatory requirements are met and that the interests of the company's creditors and shareholders are protected.
Conclusion
The liquidator plays a critical role in the liquidation process in India. They are responsible for managing the affairs of the company, collecting and distributing its assets, and ensuring that the liquidation process is conducted fairly and transparently.
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