Liquidation is a process of winding up of a company which involves the selling of assets in order to pay the said liabilities and other obligations.
Liquidation is a process of winding up of a company which involves the selling of assets in order to pay the said liabilities and other obligations.
Contents
- 0.1 Who is a Liquidator?
- 0.2 Who can be a Liquidator?
- 0.3 Role of a liquidator
- 0.4 Duties of a liquidator
- 0.5 🧾 Role of a Liquidator in a Company
- 0.6 🏢 When Is a Liquidator Appointed?
- 0.7 🎯 Primary Role of a Liquidator
- 0.8 ✅ 1. Take Custody of Company’s Assets
- 0.9 ✅ 2. Form a Liquidation Estate
- 0.10 ✅ 3. Settle Claims of Creditors
- 0.11 ✅ 4. Sell Assets (Liquidation of Estate)
- 0.12 ✅ 5. Distribute Proceeds
- 0.13 ✅ 6. Reporting and Compliance
- 0.14 ✅ 7. Represent the Company Legally
- 0.15 ✅ 8. Finalize Dissolution
- 0.16 🧾 Who Can Be a Liquidator?
- 1 ⚖️ Legal Provisions Involved
Who is a Liquidator?
A liquidator is a person or an entity which liquidates the assets of the company. A liquidator manages the entire liquidation process. It is appointed when a company goes into liquidation or is wound up by the court in a compulsory liquidation process. The liquidator is legally authorized to act on the behalf of the company in various capacities. Liquidator basically refers to an officer who is specially appointed to wind up the affairs of a company when the company is closing typically when the company is going bankrupt.
Assets of a company are sold by the liquidator and the funds from that are used to pay off the company’s debts. In some jurisdictions, a liquidator may also be called a trustee, such as a bankruptcy trustee. Once the liquidator is assigned, he or she then takes over control of the company’s assets. These are then pooled together and sold. Cash received from the proceeds are then used to pay outstanding debt held by unsecured creditors.
Who can be a Liquidator?
The liquidator must be an adult. A child under 18 who has married or been completely appointed by a court decision can also be a liquidator. The notary who drew up the will can act as the liquidator, but only if the liquidation is done free of charge. A liquidator can be named in the will of a deceased as well. If a deceased does not mention a person in as a liquidator in a will then the heirs will automatically be the liquidator. And yes, a will can mention more than one liquidator.
Role of a liquidator
A role of a liquidator is to investigate the financial management of the insolvent company. The liquidator will secure and recover all the assets of the company, pay creditors, conduct all relevant investigations into the financial management of the company.
The Liquidator will also have the responsibility for a critical investigation of the books and records of the company, to establish when and under what circumstances the company became insolvent. Basically, a liquidator’s role is to fully wind up and bring the company’s affairs to an end.
A liquidator must
- Investigate the financial flow of a company.
- Act impartially
- Act with skill
- Avoid placing themselves in a position where personal interests could conflict with professional duties.
Duties of a liquidator
The duties of the liquidator are:
· Duty to provide notice
The first duty which a liquidator has to fulfil is that of providing notice of his appointment. Section 178 (b) of the Income Tax Act clearly conveys that who has been appointed as the liquidator shall, within thirty days give notice of his appointment to the Assessing Officer who is authorized to assess the income of the company.
· Duty to investigate into the affairs of a company from its inception
The liquidator may obtain all the necessary information regarding financial management and affairs of the company which he reasonably requires in the course of winding up under Section 277 (5) (ii) of Companies Act, 2025.
· Duty to recover and realize the company’s assets
Duty of recovery of the assets of the company. All his powers are designed to ensure the effective discharge of this duty under Section 277(5) (iii) of companies act, 2025.
· Duty to form winding-up committee and to make reports
It is a duty of liquidator to make an application to the tribunal for the constitution of a winding-up committee under Section 277(4) of Companies Act, 2025.
The winding-up committee shall consist of the following persons:
- Official liquidator attached to the tribunal
- Nominee of secured creditors
- A professional nominated by the tribunal.
A liquidator is an agent of the company with a duty to act responsibly. The purpose of appointing a liquidator is to wind up a failing or bankrupt business and so he should act with professional efficiency. He must not exercise the sort of contentment that might have caused the business to decline in the first place.
🧾 Role of a Liquidator in a Company
A liquidator is an officer appointed to wind up (close) a company, sell its assets, pay off liabilities, and distribute any remaining funds to stakeholders. The liquidator takes control when a company enters liquidation, either voluntarily or compulsorily, under the Companies Act, 2025 and the Insolvency and Bankruptcy Code (IBC), 2025.
🏢 When Is a Liquidator Appointed?
A liquidator is appointed when a company undergoes:
| Type | Trigger | Legal Provision |
|---|---|---|
| 🔹 Voluntary Liquidation | Decision by shareholders | Section 59 of IBC |
| 🔹 Compulsory Liquidation | By NCLT order (e.g. unable to pay debts) | Section 33 of IBC or Section 271 of Companies Act, 2013 |
| 🔹 Liquidation during CIRP | If insolvency resolution fails | IBC Sections 33–54 |
🎯 Primary Role of a Liquidator
The liquidator’s job is to manage the winding-up process efficiently and lawfully. Here’s what they do:
✅ 1. Take Custody of Company’s Assets
- Take control of books, records, assets, and properties
- Secure and safeguard all movable and immovable property
✅ 2. Form a Liquidation Estate
- Prepare an inventory of:
- Land/buildings
- Machinery, receivables
- Bank balances and investments
✅ 3. Settle Claims of Creditors
- Verify claims from operational and financial creditors
- Classify claims: secured/unsecured, priority-based
- Prepare a list of admitted claims
✅ 4. Sell Assets (Liquidation of Estate)
- Conduct auctions, private sales, or tendering processes
- Sell assets to raise funds for liability settlement
✅ 5. Distribute Proceeds
- Distribute money as per the priority waterfall mechanism under Section 53 of IBC
- Insolvency costs
- Secured creditors
- Employees
- Unsecured creditors
- Shareholders (last)
✅ 6. Reporting and Compliance
- File regular reports with:
- National Company Law Tribunal (NCLT)
- Insolvency and Bankruptcy Board of India (IBBI)
- Maintain books of accounts
- Prepare and file:
- Preliminary report
- Asset sale reports
- Final report and dissolution application
✅ 7. Represent the Company Legally
- Act as legal representative in all courts/tribunals
- Handle ongoing lawsuits or initiate recovery proceedings
✅ 8. Finalize Dissolution
- Once assets are liquidated and liabilities paid, file:
- Final report of liquidation
- Application for company dissolution before NCLT
🧾 Who Can Be a Liquidator?
| Type | Who Can Be Appointed? |
|---|---|
| Voluntary Liquidation | Registered Insolvency Professional (IP) |
| NCLT-Ordered Liquidation | IP from the Insolvency Professionals List (IBBI) |
| Winding up by ROC | Official Liquidator appointed by MCA |
⚖️ Legal Provisions Involved
| Act | Relevant Sections |
|---|---|
| Companies Act, 2013 | Sections 270–275 (winding up by tribunal) |
| IBC, 2016 | Sections 33–54 (corporate liquidation process) |
| Rules | Companies (Winding Up) Rules, 2020 |
📌 Real-World Example
Suppose a tech startup is unable to repay its debts and enters liquidation:
- An IP is appointed as liquidator by NCLT
- They take over the books, auction the servers and IP assets
- Settle dues of employees, vendors, and banks
- File a final report → NCLT issues dissolution order
🧠 Summary Table
| Task | Performed By Liquidator |
|---|---|
| Take control of assets | ✅ Yes |
| Verify and settle claims | ✅ Yes |
| Sell assets | ✅ Yes |
| Distribute proceeds | ✅ Yes |
| File reports with IBBI/NCLT | ✅ Yes |
| Represent company legally | ✅ Yes |
Would you like:
- A liquidator appointment template?
- A sample claim verification sheet?
- Guidance on how to initiate voluntary liquidation?
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