Understanding the Company’s Settlement

Liquidation of company:

Launching a company is the process whereby its lifetime ends and its property is managed for the benefit of its creditors and members. An administrator called a liquidator is appointed and he takes control of the business, collecting its debts and eventually distributing any profits among its members in accordance with their rights.

Such companies can be run:

Only one limited company can be wound up. The term “settlement” (or “settlement”) has a similar meaning of “liquidation”. This generally means that all of the company’s assets will be realized (sold and converted into cash) through a legal process to repay its debt. Settlement would put an end to a company.

A limited company is a company registered under the Companies Ordinance. It is a separate legal entity (i.e., it can sue or be sued in litigation). Shareholders’ liabilities are limited to the value of the Company’s shares owned by them (limited by shares). Another situation that is not common in commercial organizations is that shareholders’ obligations are limited to the amount that shareholders have agreed to contribute to the company’s assets if the company is wound up (limited by guarantee).

An “unlimited business” or a sole trader is not a “business” in the strict sense. It is a business run in the form of an individual enterprise. In other words, the business is owned by an individual. A sole proprietor is solely and personally responsible for the corporate responsibility.

A partnership is a form of business owned by two or more people (partners). The partners are personally jointly and severally responsible (ie each partner must be responsible) for the responsibility of the company.

An overview of liquidation procedures:

You can get a general picture of the liquidation procedures (except “voluntary settlement”) from the following steps:

First, issuing a written claim for repayment of debt to the target company

Second, to present a settlement of the petition to the Court and the company.

Third, the hearing on the petition.

Fourth, the Court’s grant of liquidation.

Fifth meeting with creditors and other relevant parties.

Sixth appointment of liquidator.

Seventh, realization and distribution of the company’s assets to the creditors.

For the eighth discharge of liquidator duties.

Eventually dissolution of the company.

The Company’s liquidation:

A company can be run in any of the following states:

1. By Tribunal, viz. mandatory winding

2. Voluntary settlement, which may be

(a) Member’s voluntary settlement

(b) Creditors voluntary liquidation

Settlement of Tribunal:

o If, by special resolution, the company has decided that the company may be liquidated by the court;

o If there is a default when delivering the statutory report to the registrar or holding the statutory meeting;

o If the company does not start its business within one year of its creation, or

suspends its business for a full year

o If the number of members is reduced, their required number is;

o If the company is unable to pay its debt;

o If the court thinks it is fair for the company to be


o If the company defaults by registering with the Registrar its balance sheet and profits and

deficit account for five consecutive financial years and

o If the company has acted against the interests of the sovereignty and integrity of India or

the security of every state, friendly relations with foreign states, public order, decency and morals.

Voluntary settlement:

In the case of voluntary settlement, the entire process is carried out without court supervision. Once the settlement is completed, the relevant documents are filed with the Court to have the order rescinded. A voluntary settlement can be carried out by the members, as may be done by the creditors. The circumstances in which a company can be voluntarily liquidated are: –

1. When the period fixed for the duration of the business in its articles has expired

2. When an event occurs where the business is to be dissolved according to its articles

3. By special resolution at a general meeting, the company decides to be voluntarily wound up.

Voluntary settlement begins from the date of the decision on voluntary settlement. This is the case even when, following a decision on voluntary liquidation, the Court makes a petition for settlement. The effect of the voluntary settlement is that the company ceases to continue its business unless it is necessary for an advantageous settlement thereof.

Persons may petition the Court for settlement of:

1. The company

2. Any creditor in the company

3. Any contributor or shareholder. Contributing means any person responsible for contributing to the assets of a company in the event that it is wound up and includes holders of its fully paid-up shares. While every member of a business becomes a contributor, not all contributors are members. In addition to members, anyone who ceased to be a member one year prior to the commencement of the settlement is also a contributor.

4. The Registrar may request settlement in the following circumstances: –

(i) If there is default in the provision of statutory report or the preparation of statutory report.

(ii) If the business does not commence its business within one year of its establishment or ceases its business for a full year.

(iii) If it is apparent either from the financial position of the company as described in the company’s balance sheet or from the report of a special auditor or an inspector, that the company is unable to pay its debt.

(iv) Where the registrar is authorized by the Central Government to file petition for liquidation of the business.

(v) Where the number of members of the company falls below the statutory minimum.

(vi) Where it is fair for the business to be wound up.

5. Any person authorized by the Central Government. Section 243 reveals a report from an inspector appointed to investigate the company’s affairs:

(i) That the business of the business is conducted to defraud its creditors or members or for any fraudulent or unlawful purpose;

(ii) That the persons involved in the formation or management have been guilty of fraud, misfeasance and it appears that the Central Government, on the basis of such a report, does so, the Central Government may authorize any person, including the Registrar, to file a petition; liquidate the business on the grounds that it is fair and equitable to do so.

6. The official liquidator attached to a court where a company is already voluntarily wound up and such voluntary settlement cannot be continued with due regard for the interests of creditors or contributors or both parties.

The liquidator can be released from the relevant tasks in a liquidation:

The liquidator may request the Court to release the duties when the following has occurred

been implemented:

– all assets of the company are realized (ie all assets are sold and converted

for cash);

– settlement investigations have been completed and

– any final dividend has been paid to the creditors to settle the debt

The liquidator sends messages together with a summary of the relevant receipts and payments in the liquidation to the company’s creditors and contributors that they intend to request the Court to release the tasks as liquidator. At this time, any creditor or contributor has 21 days from the date of the notice to object to the liquidator’s intended release.

Upon receiving the order for release from the court, the liquidator will file a “liquidator release certificate” to the company registrar. The company is dissolved two years after filing the “Certificate of Release of Liquidator”.


After the analysis, it turns out that the right to apply for settlement is the creation of statutes and not of contract. But it should be noted that the settlement process is greatly influenced by the facts and circumstances of a particular case. The machine cannot be used as a printing tactic. This is the stage where the company takes its last breath.