Liquidator’s Statement of Account
For accounting of various receipts and payments, the liquidator has to maintain a ‘cash book’, the summarized form of which has to be sent to the court in case of compulsory dissolution and to the registrar of the company in case of voluntary dissolution. When the position of the company is completely liquidated, the liquidator prepares the final statement of receipts and payments, also known as the ‘final account statement of the liquidator’.
This final statement of account is prepared like an account i.e. the word ‘To’ is written on the debit side and By’ on the credit side, though it does not contain double entries of the items recorded. Its debit side shows all the items from which the liquidator receives money and on its credit side the items to be paid are written off.
(A) Sources of Receipts
A liquidator or liquidator or commercial usually receives money from the following sources
(i) cash or bank balance with the company,
(ii) by the sale of the assets of the company,
(iii) by taking legal action against the defaulting directors and other officers, (iv) by demanding unpaid amount from the shareholders,
(v) excess of secured creditors,
(vi) Receipt from the receiver, if he has excess.
(B) Order of Payment –
The details of the sale of the assets of the company, recovering it from the debtors and the total amount received from the subscribers are given in the following order
(i) payment of the liquidator’s remuneration, (ii) closing-expenses or closing costs,
(iii) Payments to debenture holders who have received any charge on the assets of the company, (iv) Payments to predecessor creditors, such as salaries of employees, income tax etc., (v) Payments to unsecured creditors, such as creditors, bills payable, unpaid expenses etc.,
(vi) capital return of preference shareholders,
(vii) Capital return to equity shareholders
Calculation of remuneration of liquidator
(Calculation of Liquidator’s Remuneration) In case of compulsory winding up, the remuneration of the liquidator is determined by the court and in the case of voluntary winding up the remuneration of the liquidator is determined in the meeting in which the liquidator has been appointed. The remuneration of the liquidator is calculated as follows-
(1) Commission on the amount of realization of assets.
Assets are recovered on a predetermined percentage basis. But the question arises whether cash and balance of the bank and the amount recovered by secured creditors should be included or not included in the amount of recovery, there are different opinions in this regard. But in my opinion these should not be included in the amount of recovery for the purpose of computing the remuneration, but should be included if the question directs to include them. The following formula is used for its calculation-
(II) Commission on amount paid to unsecured creditors
(a) When the creditors are being paid in full – This commission is calculated on the basis of a predetermined percentage on the amount paid to the unsecured creditors. The main question that arises in this regard is whether the prior payments should also be treated as unsecured creditors or not. Different scholars are not unanimous in this regard but in our view the amount to be paid to the preferential creditors should be included in the amount paid to the unsecured creditors, as they are also unsecured, so the amount to be paid to the preferred creditors should be included in the amount paid to the unsecured creditors. Liquidator’s commission should also be calculated on the amount paid, provided nothing to the contrary is stated in the question. It is calculated as follows
(b) When unsecured creditors are not being paid in full – If the unsecured creditors receive full payment, then the calculation of commission is not complicated at that time. Complexity in calculation arises when unsecured creditors are not getting paid in full. In this case the following formula is used to calculate the commission
(III) Commission on the amount paid to the shareholders
Sometimes it is decided to pay commission to the liquidator on the amount which will be paid to the predecessor shareholders or to the equity shareholders or to both the types of shareholders. Such commission is usually agreed to by the liquidator only when there is a possibility of sufficient amount being paid to the shareholders. It has to be kept in mind that the amount left after payment of all types of liabilities is available to the shareholders. That the shareholders have to calculate the commission on the amount due, then the said balance amount is available for both the amount payable to the shareholders and the commission thereon. In such a case, the formula for calculation of commission will be as follows