In this article we will discuss about the accounting treatment for liquidator’s statement of affairs, explained with the help of a suitable illustrations.
Statement of Affairs to be made to Official Liquidator:
As per Section 454 of the Companies Act, the Officers or Directors of the Company under winding up order, must make out and submit, within 21 days of the court’s order, or within such extended time, not exceeding three months time, as the liquidator or court may allow, a statement containing the following particulars.
(a) The assets of the company, stating separately the cash balance in hand and at the bank, if any, and negotiable securities, if any, held by the company.
(b) Its debts and liabilities.
(c) The names, residences and occupations of its creditors, stating separately the amount of secured and unsecured debts; and in the case of secured debts, particulars of the securities given, whether by the company or an officer thereof, their value and the dates on which they were given.
(d) The debts due to the company and the names, residences and occupations of the persons from whom they are due and the amount likely to be realised on account thereof.
(e) Such further or other information as may be prescribed or as the official liquidator may require.
The statement must be in the prescribed form and properly verified by an affidavit. It should be open for inspection by a creditor, or contributory of the company, on payment of a prescribed fee. The concerned creditor or contributory can also have an extract from it.
The form prescribed by the Supreme Court in this regard is given below:
FORM No. 57:
(See Rule 127)
In the High Court at ………………….. (or)
In the District Court at ……………………
Original Jurisdiction …………………
In the matter of Companies Act 1956
In the matter of……………………………… Ltd
Company Petition No…………………… of 199..
Statement of Affairs under Section 454:
Statement of Affairs of the above named Company as on the………… day of …. 199…, the date of the winding up order (or the order appointing Provisional Liquidator or the date directed by the Official Liquidator).
I/We…….. of…….. do solemnly affirm and say that the statement overleaf and the several lists hereunto annexed marked A to I are to the best of my/our knowledge and belief, a full, true and complete statement as to the affairs to the above-named company, on the……….. day of… 199…. the date of winding up order (or the order appointing Provisional Liquidator or the date directed by the Official Liquidator), and that the said company carries/carried on the following business:
(Here set out nature of Company’s business)
Solemnly affirmed ………….. this ……………. day of 199 ……… before me.
Commissioner for Oaths.
The Commissioner is particularly requested, before swearing the affidavit, to ascertain that the full name, address and description of the deponents are stated, and to initial any crossings-out or other alteration in the printed form. A deficiency in the affidavit in any of the above respects will entail its refusal by the court, and will necessitate its being re-sworn.
The several lists annexed are not exhibits to the affidavit.
Statement of Affairs and Lists to be Annexed:
Statement as to the affairs of …. Ltd. on the …. day of…………….. 199…. being the date of the winding up order (or order appointing Provisional Liquidator or the date direct by the Official Liquidator, as the case may be) showing assets at estimated realisable values and liabilities expected to rank.
(e) (to be deducted from surplus or added to deficiency as the case may be)
The figures must be read subject to the following notes:
(1) (f) There is not unpaid Capital liable to be called up or
(g) The Nominal amount of unpaid capital liable to be called up is Rs … estimated to produce Rs…. which is/is not charged in favour of Debenture holders (strike out (f) or (g)).
(2) The Estimates are subject to costs of the winding-up and to any surplus or deficiency on trading pending realisation of the assets.
The details of the particulars to be given in the Statement of Affairs can be summarised as follows:
This list consists of all “free assets”, that is, assets not specifically pledged in favour of any creditor. Assets against which there is a floating charge will also be included in this list. Calls-in-arrears will also come in this category to the extent they are realisable. However, uncalled capital should not be included in this list.
This list consists of assets pledged specifically in favour of certain creditors. Any excess of the realisable value of the assets over the amount due should be shown separately as given in the prescribed form of the Statement of Affairs. In case of deficiency, the amount of such deficiency has to be included in list E, i.e. unsecured creditors. For example, building worth Rs. 2,000 has been mortgaged in favour of a Bank for a loan of Rs. 3,000, the Bank is unsecured to the extent of Rs. 1,000 and, therefore, this amount will be included in List E of unsecured creditors.
This list consists of preferential creditors, that is, creditors, who are unsecured but are entitled to priority in payment over creditors having a floating charge and other unsecured creditors. A list of preferential creditors, under Sec. 530.
This list consists of those creditors who have floating charge over the assets of the company. Usually, in this list, debenture-holders are included since they are generally presumed to have a floating charge over the assets of the company in the ‘ absence of any specific instruction in the question.
The list consists of unsecured creditors, that is, creditors who do not have any sort of charge whatsoever against the assets of the company. Trade creditors, Bills payable, Liability for Bills discounted, to the extent of possible loss on account of dishonour of the bills, Creditors on open account etc. come in this category.
This list consists of holders of the preference share capital of the company. They are to be taken at a value which is left after unrealisable calls in arrears.
This list consists of holders of the Equity Share Capital of the company. The amount due to them is to be arrived after deducting from the called up share capital, any unrealisable amount of calls in arrears.
This list explains the reasons for the surplus or the deficiency as shown by the Statement of Affairs. According to law, the period covered by Deficiency or Surplus must commence on a date not less than three years before the winding up order, or if the company has not been incorporated for the whole of that period, the date of incorporation of the company, unless the official Liquidator otherwise agrees.
Steps in Preparing the Statements of Affairs:
1. Put down the “free” assets (assets not specifically pledged) at their realisable values.
2. Add any surplus expected from securities in the hands of the creditors.,
3. Deduct preferential creditors.
4. Deduct debentures having a floating charge or similar other creditors.
5. Deduct unsecured creditors together with unsatisfied balance of partly secured creditors.
6. Deduct Share Capital.
If at any stage the deduction to be made is more than the amount available, deficiency appears, otherwise there is a surplus.
List ‘H’ – Deficiency or Surplus Account:
The period covered by this Account must commence on a date not less than 3 years before the date of the winding-up order (or the order appointing Provisional Liquidator, or the date directed by Official Liquidator) or, if the Company has not been incorporated for the whole of that period, the date of formation of the Company, unless the Official Liquidator otherwise agrees.
Note as to Net Trading Profits and Losses:
Particulars are to be inserted here (so far as applicable) of the items mentioned below, which are to be taken into account in arriving at the amount of net trading pre/fits or losses shown in this account: Provisions for depreciation, renewals, or diminution in value of fixed assets. Charges for Indian Income-tax and other Indian taxation on profits. Interest on debentures and other fixed loans, payments to directors made by the Company and required by law to be disclosed in the accounts. Exceptional or non-recurring expenditure.
A limited company went into voluntary liquidation with the following liabilities:
The assets realised Rs 2, 00,000. Expenses of liquidation amounted to Rs 2,000 and liquidator’s remuneration Rs 3,000. Prepare liquidator’s final account.
Points Worthy to be Noted:
The following points should be kept in mind, while preparing the Statement of Affairs and Deficiency/Surplus Account:
1. Liquidator’s Statement of Account is prepared as an account but it is a statement. The words “To” is not recorded in the left hand side and “By” is not recorded in the right hand side of this Account.
2. Personal guarantee given by any party including the guarantees given by the Directors for loans raised by the company, should be ignored while preparing the Statement of affairs.
3. The fictitious assets such as profit and Loss Account, (Dr balance), Discount on Issue of Shares or Debentures, underwriting commission, Preliminary expenses etc. should not be taken as asset in the Statement of Affairs.
4. The interest on loan or debenture is payable upto the date of payment if the company is solvent. Otherwise, the interest is payable only up to the date of commencement of winding up. Solvent means the company can pay to the unsecured creditors.
5. Amount of Bank and Cash balances are not realised by the Liquidator, hence these amounts should not be added in the amounts of assets realised for the purpose of calculating Liquidator’s remuneration. If its inclusion is specifically mentioned, then of- course, it should be taken into consideration for the purpose of calculation of Liquidator’s remuneration.
6. In case of fully secured creditors, security is realised by the creditors themselves and they adjust their receivable amount out of its proceeds, the Liquidator’s job is only to realise the surplus from secured creditors, therefore, while calculating remuneration of the Liquidator on the amount of assets realised, only surplus from secured creditors should be added in the realised amounts of other assets unless otherwise mentioned.
7. Calls-in-arrears should be treated as an asset.
8. Debenture-holders should be assumed to have floating charge on the whole assets of the company.
9. Any money received by the company on account of calls-in-advance will be paid in priority to any payment to the share-holders of that class.