Tuesday, April 12, 2016

Procedures you need to know: Voluntary Winding Up of LLP


STEP 1 (CONSENT OF CREDITORS AND MAKING OF DECLARATION):-
A. Making of Declaration
Ø  The majority of its designated partners (being not less than two) must make a declaration in Form No. 2 verified by an affidavit to the effect that the LLP has no debt or that it will be able to pay its debts in full within such period, as may be specified in the declaration, but not exceeding one year from the commencement of the winding up.

Ø  However, such declaration shall have no effect for the purposes of Limited Liability Partnership Act, 2008 (“the Act”) and the Limited Liability Partnership (Winding up and Dissolution) Rules, 2012, (“the Rules”) unless —


(a) it is delivered to the Registrar for registration in Form No. 3 within fifteen days immediately preceding the date of the passing of the resolution for winding up of LLP;
(b) it contains a statement declaring that the LLP is not being wound up to defraud any person or persons.

(c) it is accompanied by a statement of assets and liabilities prepared in Form No. 4 for the period commencing from the date up to which the last account was prepared and ending with the latest practicable date immediately before the making of the declaration duly attested by at least two designated partners; and
(d) it is accompanied by a report of the valuation of the assets of the LLP prepared by
 a valuer, if there are any assets of the LLP.
Ø    The LLP or its designated partners may repay any dues of the creditors or satisfy the claims of creditors in any manner, before any such declaration is made.


B. Pre-requisite Steps:
Ø  Where any LLP has creditors, secured or otherwise, such LLP must, before taking any action for winding up of the LLP, seek approval of such creditors and shall send them, by registered or speed post or any other mode defined in rule 15 of Limited Liability Partnership Rules 2009, a copy of such declaration the estimated amount of the claims due to each of the creditors and an offer for creditors to accept such claims.

Ø  The creditors must give to the LLP their opinion in respect of voluntary winding up proposed by the LLP or acceptance of such offer within thirty days of receipt of the declaration .

Ø  Where two-thirds in value of creditors of the LLP give their consent that-

(a) it is in the interest of all the partners and creditors that the LLP be wound up voluntarily by partners, the LLP shall be wound up voluntarily by partners; or
(b) the LLP will not be able to pay for its debts in full from the proceeds of assets to be sold in voluntary winding up and propose that the LLP be wound up voluntarily by creditors, the LLP shall be wound up voluntarily by creditors; or
(c) the LLP will not be able to pay for its debts in full from the proceeds of assets to be sold in voluntary winding up and propose that it will be in the interest of all partners and creditors if the LLP is wound up by the Tribunal, the LLP shall, within fourteen days thereafter, file an application before the Tribunal for winding up:
Provided that where the LLP pays the dues of creditors to their satisfaction, clause (b) or clause (c), as the case may be, shall not be applicable.

Ø  Notice of any decision of creditors shall be given by the LLP to the Registrar in Form No 5 within fifteen days from the date of receipt of consent of the creditors referred to above.


STEP 2 (PUBLICATION OF RESOLUTION):-
Where LLP has by resolution resolved for voluntary winding up and consent of creditors under is received for voluntary winding up of the LLP, it shall, within fourteen days of the receipt of creditors’ consent, give notice of the resolution by advertisement in a newspaper circulating in the district where the registered office or the principal office of the LLP is situated.


STEP 3 (APPOINTMENT OF LIQUIDATOR):-
Ø  The LLP must within thirty days of -
(a) passing of resolution of voluntary winding up, where LLP has no creditors, or
(b) filing of notice intimating the decision of winding, where it has creditors,;
with the consent of majority of partners through resolution, appoint a voluntary Liquidator as LLP Liquidator for the purpose of winding up its affairs and fix the remuneration to be paid to the LLP Liquidator.

Ø  Where the creditors have given consent, the appointment of LLP Liquidator shall be effective only after it is approved by two-thirds of the creditors in value of the LLP:

Ø  Provided that where such creditors do not approve the appointment of LLP Liquidator appointed by the partners of LLP, creditors shall appoint another LLP Liquidator, with two-thirds of the creditors in value of the LLP and fix the remuneration to be paid to the LLP Liquidator.

Ø  If the creditors and the partners of the LLP nominate different LLP Liquidators, the LLP Liquidator nominated by creditors shall be the LLP Liquidator but where the creditors neither approve the LLP Liquidator nominated by the partners of the LLP nor nominate any other LLP Liquidator, the LLP Liquidator nominated by the partners of the Ø LLP shall be the LLP Liquidator.

Ø  The LLP Liquidator, after his appointment, shall file a declaration in the Form No. 6 disclosing conflict of interest or lack of independence in respect of his appointment, if any, with the LLP or the creditors, as the case may be, and such obligation shall continue throughout the term of his or its appointment.

Ø   The LLP shall give notice to the Registrar of the appointment of, or any vacancy occurred by death, resignation, removal or otherwise of, the LLP Liquidator indicating the name and

Ø particulars of that LLP Liquidator, within ten days of such appointment or change in Form No. 7.


STEP 4 (DISSOLUTION):-
Ø  As soon as the affairs of a LLP are fully wound up, the LLP Liquidator shall prepare a report stating the manner in which the winding up has been conducted and property has been disposed off, final winding up accounts and explanations, in the Form No 9, showing that the property and assets of the LLP have been disposed of and its debts fully discharged or discharged to the satisfaction of the creditors and thereafter seek approval of the partners or the creditors of the LLP, as the case may be, on the said report and the final winding up accounts and explanation in the meeting of partners or creditors:

Ø  Provided that no such meeting of creditors is required, if creditors are paid their dues in the manner described above.

Ø  If two-thirds of total number of partners or, two thirds in value of creditors, as the case may be, after considering the report, accounts and explanations of the LLP Liquidator are satisfied that the LLP shall be wound up, they shall pass a resolution, within thirty days of receipt of such report, winding up accounts and explanation for its dissolution in the case of meeting or within thirty days of receipt of such circulation or further information, whichever is later, in the case of circulation

Ø  Within fifteen days after the resolution, the LLP liquidator shall-

(a) send to the Registrar a copy of the final winding up accounts, explanation and report in Form No. 10; and
(b) file an application with the Tribunal alongwith a copy of the final winding up accounts, explanations and report, for passing an order of dissolution of the limited liability partnership.

Ø  If the Tribunal is satisfied, after considering the application, final winding up accounts, explanations and report of the LLP Liquidator, that the process of winding up has been duly followed, the Tribunal may pass an order, within sixty days of the receipt of such application, accounts, explanations and report, that the limited liability partnership shall stand dissolved.

Ø  The LLP Liquidator shall file a copy of the order with the Registrar within thirty days in Form No 11.

Ø  The Registrar, on receiving the copy of the order passed by the Tribunal, shall forthwith publish a notice in the Official Gazette that the LLP stands dissolved.

Ø  In the event affairs of the LLP are not fully wound up within a period of one year from the date of commencement of voluntary winding up, LLP Liquidator shall file an application before the Tribunal explaining the reasons thereof and seek appropriate directions.


PROVISIONS RELATING TO THE LLP LIQUIDATOR:-
Duties of LLP Liquidator.-
(1) The LLP Liquidator must perform such functions and discharge such duties as are determined from time to time by the LLP or its creditors, as the case may be.
(2) The LLP Liquidator must settle the list of creditors or partners, which shall be prima facie evidence of the liability of the persons named therein to be creditors or partners.
(3) The LLP Liquidator must obtain approval of partners or creditors of LLP, as the case may be, for any purpose he may consider necessary.
(4) The LLP Liquidator must maintain regular and proper books of accounts in the form and manner as specified in Part VI and the partners or the creditors or any officer authorized by the Central Government may inspect such books of accounts.
(5) The LLP Liquidator must pay the debts of the LLP and shall adjust the rights of the partners among themselves.
(6) The LLP Liquidator must observe due care and diligence in the discharge of his duties.

Notice of appointment of LLP liquidator – The notice of his appointment which every LLP liquidator is required to be published in the newspaper shall be in Form No. 90 and the notice of the appointment to be delivered to the Registrar shall be in Form No 7.

Security by LLP liquidator appointed by Tribunal. – (1) Every LLP Liquidator appointed by the Tribunal shall, before entering upon his duties as a Liquidator of the LLP for which he is appointed, furnish security in such sum and in such manner as the Tribunal may direct. The cost of furnishing the required security shall be borne by the LLP Liquidator and shall not be charged against the assets of the LLP as an expense incurred in the winding up.

Liqidator’s statements: In a voluntary winding-up the statements required to be filed with respect to the proceedings in and position of the liquidation of an LLP the winding up of which is not concluded within a year after its commencement, shall be filed with the Registrar twice in every year as follows:-
(1) The first statement, commencing from the date when a liquidator was first appointed
 and brought down to the end of twelve months from the commencement of the winding up shall be filed within one month from the expiration of such twelve months, and subsequent statements shall be filed at intervals of half a year, each statement being brought down to the end of the half year for which it is filed. Where the winding up is concluded before the expiration of a half-yearly interval, the final statement of account brought down to the close of the winding-up shall be filed forthwith.
(2) Where the time for filing the statement has expired the Tribunal may on application extend the time, and unless the Tribunal otherwise orders, the costs of such application shall be borne by the liquidator personally.
(3) The statements shall be in Form No. 15 (with such variations as may be necessary in the case of the final account) and shall be prepared in accordance with the instructions contained in the Form and verified by an affidavit.
(4) Where the liquidator has not, during any period for which the statement has to be filed, received or paid any money on account of the LLP, he shall, at the period when he is required to file his statement, file with the Registrar the prescribed statement in the above Form No. 15, containing the particulars therein required with respect to the proceedings in and the position of the liquidation together with an affidavit of no receipt or payments.
(5) Every statement shall be filed in duplicate with the Registrar, and, in a winding up under the supervision of the Tribunal, a copy of the statement shall also be filed in the Tribunal, within the time prescribed in clause (1) above.

Information as to pending liquidations-
Ø  The LLP liquidator shall during the tenure of his office prepare every year a statement of accounts as on 31st March in Form No 15 within two months thereof which shall be verified by a declaration

Ø  The accounts shall be audited by a Chartered Accountant, and for the purpose of the audit, the LLP Liquidator or liquidator shall furnish the auditor such vouchers and information as the auditor may require.

Ø  A copy of the statement of accounts along with the Auditor’s report shall be filed with  the Registrar in every kind of winding up in Form No. 10 not later than the following 30th day of September
 Ø The provision reproduced below shall so far as may be, apply to the voluntary winding up as they apply to the winding up by the Tribunal except that the reference to –
(a) the Tribunal shall be omitted;
(b) the liquidator or the Provisional Liquidator shall be construed as reference to
the LLP liquidator, and
(c) the “relevant date” shall be construed as reference to the date of
commencement of the voluntary winding up.
“Where the Tribunal has made a winding up order or appointed the Liquidator as provisional liquidator, unless the Tribunal in its direction otherwise orders, there shall be made out and filed with the Liquidator a Statement as to affairs of the LLP in the form and the manner as specified in Part VI, within twenty-one days from relevant date or within such extended time not exceeding two months (including the period of twenty-one days) as the Liquidator or the Provisional Liquidator or the Tribunal may for special reasons extend.”


GENERAL PROVISIONS:-
LLP Liquidator to accept contribution, etc., as consideration for sale of property of LLP.-  
Ø  Where a limited liability partnership (the transferor LLP) is proposed to be, or is in the course of being, wound up voluntarily and the whole or any part of its business or property is proposed to be transferred or sold to any other limited liability partnership (the transferee LLP), the LLP Liquidator of the transferor LLP may, with the sanction of a resolution of the transferor LLP passed by at least three-fourths of total number of partners conferring on LLP liquidator either a general authority or an authority in respect of any particular arrangement,-
(a) receive, by way of compensation wholly or in part for the transfer or sale, cash, securities, policies, or other like interests in the transferee LLP, for distribution among the partners of the transferor LLP; or
(b) enter into any other arrangement whereby the partners of the transferor LLP may, in lieu of receiving cash, securities, policies or other like interest or in addition thereto, participate in the profits of, or receive any other benefit from, the transferee LLP:
Ø  Provided that no such arrangement shall be entered into without the consent of the secured creditors, if any.

Ø  Any transfer, sale or other arrangement made in this manner shall be binding on all the partners of the transferor LLP.

Ø  Any partner of the transferor LLP who did not vote in favour of the resolution and expressed his dissent therefrom in writing addressed to the LLP Liquidator and left at the registered office of the limited liability partnership within seven days after the passing of the resolution, may require the LLP Liquidator to purchase his interest at a price to be determined in accordance with the agreement or by the registered valuer.

Ø  If the LLP Liquidator decides to purchase such partner’s interest, the purchase money, raised by him in such manner as may be determined by a resolution passed by three- fourths of total number of partners, shall be paid before the limited liability partnership is dissolved.

Distribution of property of LLP.-
Subject to the provisions of the Act and the rules in respect of overriding preferential payments, the assets of an LLP shall, on its winding up, be applied in satisfaction of its liabilities pari passu and, subject to such  application, shall, unless the LLP Agreement otherwise provides, be distributed among the partners according to their rights and interests in the LLP.


Arrangement between LLP and creditors.-
Any arrangement entered into between an LLP in the course of being wound up and its creditors by three-fourths of the total number of partners of LLP and the three-fourths of the total number of creditors in value shall be binding, provided that the said arrangement is presented before the Tribunal within twenty one days from the date of approval by the LLP and the creditors and is approved by the Tribunal.

Application to Tribunal. -
Ø  The LLP Liquidator or any partner or creditor may apply to the Tribunal—
(a) to determine any question arising in the course of the winding up of a LLP; or
(b) to exercise as respects the enforcing, the staying of proceedings or any other matter, all or any of the powers which the Tribunal might exercise, if the LLP were being wound up by the Tribunal.

Ø  The LLP Liquidator or any creditor or partner may apply to the Tribunal for an order setting aside any attachment, distress or execution put into force against the estate or effects of the LLP after the commencement of the winding up.

Ø  The Tribunal may, on such an application, allow the application on such terms and conditions as it thinks fit or may make such other order on the application as it thinks fit.

Ø  Where an order staying the proceedings in the winding up is made, a copy of such order shall be filled by the LLP in Form No 11, with the Registrar, within thirty days of such order.

Costs of voluntary winding up.-
All costs, charges and expenses properly incurred in the winding up, including the fee of the LLP Liquidator, shall, subject to the rights of secured creditors, if any, and workmen, be payable out of the assets of the LLP in priority to all other claims.



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