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Sakshi Sharda
| Updated: 16 Mar, 2020 | Category: Winding Up

Removal and Replacement of Liquidator: A Complete Summary

Removal and Replacement of Liquidator

According to Section 275 of Companies Act, 2013, provides for the Appointment of Liquidator in the Company. The Company Liquidator is appointed to bring concord and balance between the Company and Creditors of the Company. Sometimes, in a Company on account of some grounds, the Tribunal can Remove and Replace the Company Liquidator. Under Companies Act, 2013, Section 276 provides for the Grounds on which the Company Liquidator can be Removed and Replaced by the Tribunal. Section 276 of Companies Act, 2013[1], brings responsibility and liability in the performance of the Company Liquidator. In this article, we will discuss the Removal and Replacement of Liquidator.      

What is the Role of Liquidator in Company?

A Company can be placed into Liquidation by ‘court order’ or by ‘resolution of creditors’ in a meeting. For the process of Liquidation to get started, a Company Liquidator is appointed in the Company. The Appointment of Company Liquidator is made according to the rules prescribed in Section 275 of Companies Act, 2013. The Company Liquidator is appointed in Company for:

  • Investigation in the Company’s financial affairs
  • Establishment of the cause of failure  
  • Examination of any possible offences by the Directors of Company or the Company.
  • Identification and Sale of Assets of Company
  • Maximizing Return for Creditors

The Company Liquidator ensures that there is the Company does an equitable distribution of assets to the creditors of the Company. The Liquidator should act in the best interest of all the creditors, rather than favouring specific groups of the Company.  If the Liquidator does not work as per the rules prescribed by law, the Tribunal can go for Removal and Replacement of Liquidator. The company Liquidator should not be biased for specific Director, employee or shareholder of the Company. The Company Liquidator should have a reasonable and determined goal to work for the best interest of the Company and Creditors of the Company.  

What are the Grounds for Removal and Replacement of Liquidator?

The Companies Act, 2013, under Section 276 provides for the grounds for Removal and Replacement of Liquidator. Section 276 of Companies Act, 2013, states the following grounds:

  • Misconduct
  • Fraud and Misfeasance
  • Failure in exercising Due Care and Diligence in performing his Powers and Duties
  • Professional Incompetence
  • Inability to act as Company Liquidator or Provisional Liquidator
  • Lack of Independence Conflict of Interest during his/her term of Appointment which would justify Removal
Grounds for Removal and Replacement of Liquidator

Sometimes there can be cases when Company Liquidator acts partially between shareholders, creditors, employees and directors. The Liquidator should always work in the best interest of creditors and the Company. A Liquidator has the power to take action against current or previous company directors who did not act in the best interests of shareholders. The main guiding principle must be that the Liquidator should be and be seen to be independent. No personnel interest of Company Liquidator should come in between while working in the Company.  

How the Removal and Replacement of Liquidator are done in Company?

The Removal and Replacement of Liquidator can be done in the following ways:

the Removal and Replacement of Liquidator is done in Company

Removal by Resignation

Under the Companies Act, 2013, the Company Liquidator can be removed if he/she resigns from the position. To resign the Company Liquidator can summon up a meeting and submit his/her resignation in the meeting. The Tribunal can transfer the assigned work of the earlier Liquidator to another Company liquidator.

Removal by Creditors

The creditors when thinks that the Company liquidator is guilty of any of the grounds mentioned in Section 276 of the Companies Act, 2013, can go for the Removal and Replacement of Liquidator. In case of Removal of Company Liquidator, the Tribunal can assign the work of earlier Liquidator to another Company Liquidator.

Removal by Death

The Death of Company Liquidator will vacate the office of the Liquidator in the Company. The Tribunal in case of death of Company Liquidator can transfer the work assigned to him/her to another Company Liquidator.

Removal by Central Government

According to Section 275 of Companies Act, 2013, the Central Government can appoint a Company Liquidator. The Central Government on account of any of grounds mentioned in Section 276 of the Companies Act, 2013, can remove the Company Liquidator. The Central Government before the Removal of Liquidator should provide him/her a reasonable opportunity of being heard.

What are the Key Considerations for Removal and Replacement of Liquidator?

There are some key considerations which should be looked during Removal and Replacement of Liquidator:

  • There should be reasonable cause shown for the Removal and Replacement of Liquidator.
  • The reasons given should be recorded in writing for the Removal and Replacement of Liquidator.
  • If the Tribunal thinks the Company Liquidator has caused loss to the Company by conducting fraud or misfeasance or failure to exercise due care and diligence while performing his powers and duties, the Tribunal can recover the loss or damages from the Company Liquidator.
  • The Tribunal can pass orders as it may think fit for the recovery of loss done by the Company Liquidator.
  • The Tribunal should give a reasonable opportunity of being heard to the Company Liquidator.
  • The Removal and Replacement of Liquidator should be done with properly written and recorded reasons for such Removal and Replacement of Liquidator.

Conclusion

The Company Liquidator is an agent of Company and trustee for the body of creditors of the Company. The Company Liquidator should work in accordance with the rules prescribed in the Companies Act, 2013. The Liquidator should take due care of the interest of the shareholders. The Liquidator if not follows the rules prescribed, can be Removed and Replaced by the Company. The process of Removal and Replacement of Liquidator is long-lasting and time-consuming. We at Corpbiz have experienced experts to help you with the process of Removal and Replacement of Liquidator. Our professionals will assist and help you with the successful completion of your process.

Read our article:New Winding Up Companies Rules (2020) under Companies Act 2013

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Sakshi Sharda

Sakshi Sharda has done BBALLB(HONS) and holds a strong knowledge on the matters pertaining to finance and law. From the past one year she is working as a legal advisor and in her leisure time she works on improvising her knowledge. Sakshi is spreading her knowledge by writing for Corpbiz.

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