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Unit 10: Liquidation of Companies: Preparation of Accounts

notes

Notes While preparing Liquidator’s Final Statement of Account some special points
should be kept in mind which are as follows:
Realisation of amount by a Liquidator: At the time of winding up, the Liquidator of the
company realises the amount due from the debtors, the sale of the assets of the company,
surplus from fully secured creditors, and makes calls on the contributories and realise the
amount from them.
Disbursement of the amount realised among various claimants: The Liquidator has to
disburse the amount in a prescribed order of payment. This is as follows:

1. Payment to fully secured creditors.
2. Payment of legal expenses cost of winding up.
3. Remuneration of the Liquidator.
4. Expenses of Liquidator.

5. Payment to debenture-holders or creditors secured by the floating charge as the
assets of the company.
6. Payment to unsecured creditors including the preferential creditors.
7. Payment of preferential shareholders including arrears of dividend.

8. Payment of equity shareholders (the remaining amount.)

self assessment

State whether the following statements are true or false:
7. Preference shareholders have the priority over equity capital for their capital as well as the
arrears of dividend at the time of winding up of the company.

8. All the voluntary transfers made by the company within one year before the date of
winding up are void as against the liquidators.
9. In assets realised, cash and bank balance is always included for the purpose of liquidator’s
commission.

10.4 liquidator’s remuneration

The Liquidator receives his remuneration in the form of commission which is usually based as a
percentage on assets realised and payment made to unsecured creditors. At the time of calculating
the remuneration of the liquidator, students should keep in mind the following points:
1. Remuneration on Assets Realised: At the time of calculation of Liquidator’s remuneration
on assets realised, generally cash-in-hand and cash at bank are not considered, unless
the examination problem provides for it directly or indirectly. Only surplus from fully
secured creditors is mostly included in the amount of assets realised for the calculation of
Liquidator’s remuneration. Regarding this, it is assumed that secured creditors themselves
realise the assets held by them as security. The Liquidator has only made an effort at
realising the surplus from secured creditors. Therefore, it is suggested that the only surplus
should be included in the amount of assets realised.

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