Meaning of liquidation of companies

Liquidation of companies means by which affairs of company wound up by law. A company can not die natural death as it is created by law.

Liquidation of companies is done by three ways:

1)      Compulsory winding up by court

2)      Voluntary winding up by members

3)      Winding up under the supervision of court

At the time of the Liquidation of company a liquidator is appointed and he realizes the cash by selling assets of the company and generally payment is made in the following order.

i)                    Liquidation expenses

ii)                   Secured creditors

iii)                 Preferential creditors

iv)                 Debentures holders

v)                  Unsecured creditors

vi)                 Preference shareholder

vii)               Equity shareholders

At the time of liquidation statement of affairs is prepared which contains the following list

 List A     provide information about secured creditors

List B     provide information about secured and unsecured creditors

List C     provide information about preferential creditors

List D     provide information about debentures holders creditors

List E     provide information about unsecured creditors

List F     provide information about preference shareholders

List G     provide information about equity shareholders

List H     provide information about surplus

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