Company Liquidators - Appointment, Removal & Replacement (Section 275 & 276)

Introduction

In general, a liquidator is an individual who is appointed to handle the liquidation process of a company when it is about to be wound up, either by force or voluntarily. The liquidator's job is to realize the company's assets, which must be adjusted against creditors, debenture holders, and other liabilities before the company finally ceases to exist. Only when a company is being wound up does a liquidator enter the picture. In the case of compulsory winding-up, the court appoints an official liquidator, whereas, in the case of voluntary winding-up, the members of the company appoint a company liquidator. The primary goal is to explain why a liquidator is required. This article goes over the importance and role of a liquidator during a company's liquidation and who is eligible to be appointed as a liquidator. The author looked at the provisions of the Companies Act of 2013 and the Insolvency and Bankruptcy Code of 2016 that deal with liquidators, their powers and responsibilities, and so on.

Section 275: Company Liquidators and their Appointments

• A person hired by the Tribunal as the Company Liquidator in consonance with the provisions of section 275 for the winding up of a company under this act is referred to as a company liquidator in the Companies Act, 2013. A liquidator is a person who has the legal authority to take action on behalf of a company in a variety of capacities; however, he is just another person who assists the company in the winding-up process.

• When a liquidator is named, he or she assumes control of the company's assets. He sells the company's assets for the highest possible price, then uses the proceeds to pay off the company's debts. Finally, if any money remains, he divides it among the members in accordance with their rights and shares. A liquidator is also known as a trustee in some jurisdictions, such as a bankruptcy trustee.

Appointment of Liquidator

• Section 275(2) of the Companies Act 2013 governs the appointment of Company Liquidators, stating that the Tribunal shall appoint the provisional or Company Liquidator from among insolvency experts registered under the Insolvency & Bankruptcy Code, 2016.

The Provisional Liquidator is appointed under Section 273(1)(c)

• Shall be chosen from a panel of insolvency professionals who have been registered under the Insolvency and Bankruptcy Code of 2016 (IBC 2016).

• Have the same powers as a company liquidator, but the tribunal can limit and restrict his powers by appointing him or by a subsequent order.

• The provisional liquidator may be appointed as the company liquidator while the winding-up order is being passed.

Terms & Conditions and Fees

Terms and conditions and the fees of the provisional liquidator or company liquidator are specified by the tribunal on the basis of the following:

1. The task to be performed

2. Qualification and experience

3. Size of the company

Filing of Declaration

Filing of declaration is done by provisional liquidator or company liquidator within 7 days of appointment.

The declaration may be filed by the liquidator disclosing the following:

1. Conflict of interest

2. Lack of independence in respect of his appointment.

Section 276: Removal and Replacement of Liquidator

This provision states the list of grounds on which the liquidator can be removed. There is no specific provision for the appointment of the official liquidator in a voluntary winding up. In a voluntary winding up by the tribunal, there is no specific provision for the appointment, removal, or replacement of a company liquidator. The central government has the authority to maintain and remove professionals from the panel under Section 275 of the 2013 Act. The tribunal has the authority to remove a provisional liquidator or company liquidator under Section 276.

Grounds of Removal

The company liquidator can be removed on the following grounds:

1. Misconduct

2. Fraud or misfeasance

3. Professional incompetence

4. Inability to act as a provisional or company liquidator

5. Conflict of interest

6. Lack of independence during the term of appointment

Note: The tribunal will record reasons in writing and a reasonable opportunity of being heard shall be given before passing the order.

Transfer of Work

In case of death or resignation or removal

1. The tribunal shall transfer work to another liquidator.

2. And record reasons in writing.

In case of any loss or damage to the company due to the points mentioned above, the Tribunal may recover such loss or damage from the liquidator and pass such order as it may think fit.