This article discusses about the role of liquidator. It deals with who is a liquidator, what are his roles, his duties and obligations and when can a liquidator be appointed. This also explains about the role of liquidator mentioned in Section 35 of the Insolvency and Bankruptcy Code. When a court can declare compulsory liquidation, what to do after that & the situations are discussed herein. According to this article,various rights and duties are attached to the responsibility of being a liquidator and explains those in brief.. This article also talks about the replacement of liquidator and CIRP (Corporate Insolvency Resolution Process) and describes the procedure of liquidation.
A liquidator is a person who has the legal authority to act on behalf of the company to deal with the company’s assets when the company decides to close its business voluntarily or otherwise. A liquidator is appointed by the court when the company goes into liquidation.
The liquidator is an insolvency professional on whom all the powers of the Board of Directors, key managerial personnel, and the partners are conferred by the Adjudicating Authority when the Liquidation order is passed under section 33 of the Insolvency and Bankruptcy Code, 2016.
Where the adjudication authority passes an order for liquidation of a corporate debtor under the Corporate Insolvency Resolution Process (CIRP), the resolution professional appointed under CIRP shall act as liquidator unless replaced by the adjudicating authority. As per Section 34(4) of the Code, the liquidator can be replaced by the adjudicating officer by order if: –
- The resolution plan submitted by the Resolution Professional under section 30 of the Code, did not meet the requirements and thus rejected as per Section 30(2).; or,
- The Insolvency and Bankruptcy Board of India recommends or suggests the replacement of the Resolution Professional for some reasons; or,
- The Resolution professional fails to submit written consent for appointment as Liquidator.
A compulsory liquidation arises when the creditor petitions in court for the compulsory winding up of the company. If the petition is accepted and succeeds, the company will be wound up by the Court, and then an official receiver (OR) is appointed as liquidator. Once the insolvent company is in compulsory liquidation, the directors will no longer be in control of the business or business assets. It shall then be the responsibility of the liquidator to control the business, its assets, and in a way its creditors as well.
In most cases, the official receiver will pass the liquidation process to an insolvency practitioner. However, sometimes when the official receiver deals with the compulsory liquidation, he will manage the paperwork, repay the creditors by reselling the assets, investigate the conduct of the director and then submit a report on it to the relevant authorities.
Section 35 of the IBC Code enumerates the various powers and duties of the liquidator.
- To verify claims of all the creditors
- To control all the assets, property, effects, and actionable claims of the corporate debtor, he can also take it in his custody to control it.
- To evaluate the assets and property of the corporate debtor and prepare a report of the same
- To take measures to protect and preserve the assets and properties of the company
- To carry on the business of the company for its beneficial liquidation
- To sell the immovable and movable property and actionable claims of the company that is undergoing liquidation by public auction or private contract
- To draw, accept, make and endorse any negotiable instruments including bill of exchange or promissory note in the name and on behalf of the corporate debtor
- To take out a letter of administration to any deceased contributory and to do in his official name any other act necessary for obtaining payment due from a contributory or his estate which cannot be ordinarily done in the name of the company.
- To obtain assistance from any person or appoint any professional, in the discharge of his duties, obligations, and responsibilities
- To invite and settle claims of creditors and claimants and distribute proceeds
- To institute or defend any legal proceedings, civil or criminal, in the name of on behalf of the corporate debtor
- To take all such actions or steps, or to sign, execute and verify any paper, deed, receipt document, application, petition, affidavit, bond or instrument and use the common seal, for this purpose if necessary, for liquidation
- To apply to the Adjudicating Authority for such orders or directions as may be necessary for the liquidation of the corporate debtor and to report the progress of the liquidation process.
- The liquidator shall have the power to consult any of the stakeholders entitled to distribution of proceeds under section 53, but any such consultation shall not be binding on the liquidator and also that the records of any such consultation shall be made available to all other stakeholders not consulted.
Under the Insolvency and Bankruptcy Code, liquidation procedures cannot be initiated by creditors as the first resort on payment failure. Instead, the Code states that a financial or operational creditor can initiate the corporate insolvency resolution process (CIRP) in the event of failure by the company to pay at least Rs 1 Lakh. However, in case of failure of the resolution plan, the corporate debtor must be liquidated.
Compulsory liquidation must be approved by the National Company Law Tribunal if something that triggers liquidation is caused. Under compulsory liquidation, the consent of the company, its shareholders or directors is not essential, once it is ordered by the court. Whereas,voluntary liquidation is the process initiated by the company itself voluntarily, through its directors or partners, and it must be approved by both its shareholders and creditors.
Other than the ones mentioned above the Liquidator has the following Rights and Duties too: –
- To accept and Reject claims of Creditors,
- Power to access any information for verification of claims and to identify assets that form a part of the Liquidation Estate of the company from different sources such as Central and State Government Agencies, a database maintained by the Board, etc. per section 37 of the Code.
- To assess preferential transactions by the Company.
- Avoid undervalued transactions
- According to Section 53 of the Code to Distribute the Liquidation proceeds.
- After all its assets are properly liquidated to make an application for the Dissolution of the Company.
The liquidator takes control of the business, meets deadlines for paperwork, keeps the authorities informed, settles all claims against the company, interviews the director and reports on the reasons for liquidation, these are some of the powers granted to the liquidator. When a company goes into compulsory liquidation or voluntary liquidation, a liquidator is appointed and after the company goes into liquidation, the liquidator has an important role to play by dealing with the company’s assets and creditors and all.
- LIQUIDATOR: Powers and Functions under IBC
- Section 35- powers and duties of liquidator
- Liquidation procedures in India