Module 5: Liquidation of Joint Stock Company

(As per NEP-2020 – SRTMU, Nanded)

5.1 Meaning and Causes of Liquidation

Meaning of Liquidation

Liquidation of a company means the process of winding up the affairs of a company, realising its assets, paying off its liabilities, and distributing the surplus (if any) among shareholders.

After liquidation, the company’s legal existence comes to an end.

(मराठी टीप: कंपनीची मालमत्ता विकून कर्ज फेडणे आणि कंपनी बंद करणे म्हणजे Liquidation.)

Causes of Liquidation

• Continuous losses

• Inability to pay debts

• Expiry of company period

• Legal or statutory reasons

• Voluntary decision of members

Modes of Winding Up (Theory)

1️⃣ Compulsory Winding Up by Tribunal
2️⃣ Voluntary Winding Up
3️⃣ Winding Up under Supervision of Tribunal

(Exam Tip: Modes of winding up is a theory-based question.)

5.2 Procedure of Liquidation

The liquidation process generally includes:

1. Appointment of Company Liquidator

2. Preparation of Statement of Affairs

3. Realisation of assets

4. Payment of liabilities

5. Preparation of Liquidator’s Final Statement of Account

6. Dissolution of company

5.3 Role of Company Liquidator

Duties of Liquidator

• Take control of company assets

• Prepare Statement of Affairs

• Realise assets

• Pay liabilities in statutory order

• Distribute surplus among shareholders

• Submit final report

(मराठी टीप: Liquidator म्हणजे कंपनी बंद करण्याची जबाबदारी असलेली व्यक्ती.)

5.4 Accounting Treatment of Voluntary Liquidation

This is the MOST IMPORTANT practical area for examination.

A) Statement of Affairs

Meaning

Statement of Affairs is a statement showing:

• Estimated realisable value of assets

• Amount payable to various classes of creditors

• Estimated deficiency or surplus

Format of Statement of Affairs

Assets

• Assets specifically pledged

• Assets not specifically pledged

• Cash and bank balance

Liabilities

• Secured Creditors

• Preferential Creditors

• Unsecured Creditors

• Shareholders

Deficiency / Surplus Account

Prepared to explain how deficiency or surplus has arisen.

(Exam Tip: Statement of Affairs + Deficiency Account is a 15-mark favourite.)

B) Liquidator’s Final Statement of Account

Meaning

It is a cash account prepared by the liquidator showing:

• Receipts from asset realisation

• Payments to creditors

• Distribution to shareholders

Format of Liquidator’s Final Statement

Receipts Side

• Cash in hand

• Realisation of assets

Payments Side

• Liquidator’s remuneration

• Preferential creditors

• Secured creditors

• Unsecured creditors

• Shareholders

(मराठी टीप: Liquidator’s Statement म्हणजे liquidation चा अंतिम हिशोब.)

Order of Payment (Very Important)

1. Liquidation expenses

2. Preferential creditors

3. Secured creditors

4. Unsecured creditors

5. Preference shareholders

6. Equity shareholders

(Exam Tip: Order of payment must be remembered correctly.)

Illustrative Problem (Model Type)

Problem (Outline)

A company goes into voluntary liquidation.
Assets and liabilities are given along with estimated realisable values.

Required:

1. Prepare Statement of Affairs

2. Prepare Deficiency / Surplus Account

3. Prepare Liquidator’s Final Statement of Account

(Complete solved numerical problems will be provided in Solved Problems PDF.)

Companies Act Formats – Important Note

• Balance Sheet before liquidation may be shown in:

  • Old format (Companies Act, 1956)

  • New format (Companies Act, 2013 – Schedule III)

• During liquidation, special statements are prepared:

  • Statement of Affairs

  • Liquidator’s Final Statement
    👉 These do not follow normal Balance Sheet formats, but examiners expect proper headings and clarity.

(मराठी टीप: Liquidation मध्ये Balance Sheet न करता special statements करतात.)

Exam-Oriented Points

• Company ceases to exist after liquidation

• Statement of Affairs is compulsory

• Order of payment is crucial

• Liquidator’s Final Statement is a cash account

• Neat format = full marks