EXPLAIN THE MODES OF LIQUIDATION
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Answer / naman
Under Companies Act, liquidation of a company facing
financial distress can be accomplished via two modes:
voluntary liquidation by creditors or involuntary
liquidation by court. In the first and the more efficient
case of voluntary liquidation, shareholders vote for
liquidation and hand over control of the liquidation process
to secured creditors, who then hire a private or an official
liquidator to oversee the asset sales and distribution of
proceeds. In the second case, a creditor with a minimal
amount of Rs. 500 of unpaid and undisputed debt, after
giving three weeks’ notice to the debtor, can petition the
court for involuntary liquidation, in which case, the court
will determine the validity of the claim and the
reasonableness of the petition before ordering liquidation.
However, the court’s actions are purely discretionary and
“the court may refuse to hold the company insolvent on other
considerations including that of public interest”
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