Introduction to Winding up of LLP
Winding up of LLP is the process of end of its existence. Since LLP is an artificial person thus it is created and ended through legal proceedings by following a prescribed procedure. Winding up is the takeaway method to cease the existence of LLP regulated by Limited Liability Partnership Act, 2008 and any rules made thereunder. This Blog will help you to understand the LLP Winding Up Procedure.
What is Winding Up of Limited Liability Partnership?
Winding up of LLP means the closure of LLP. It is a process whereby life of LLP is ended because of reasons prescribed under the relevant laws. It is followed by the realization of assets and to apply the proceeds of realization for the payment of liabilities and to distribute the surplus among partners as per their profit-sharing ratio.
What are the Modes of Winding up of LLP?
Section 63 of Limited Liability Partnership Act, 2008 has prescribed following two Modes of Winding up of LLP-
1. Voluntary Winding
– By the Partners of LLP
2. Compulsory Winding Up
– By Tribunal
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What is Voluntary Winding Up of LLP?
As the name indicates, Voluntary winding-up of an LLP is the closure of LLP with mutual consent of partners of LLP. Thus, Partners pass a Special Resolution to wind up the affairs of LLP.
What is the procedure of Voluntary Winding Up of Limited Liability Partnership?
Limited Liability Partnership Act, 2008 and Limited Liability Partnership (Winding up and Dissolution) Rues, 2010 have laid down the following steps for Voluntary Winding up of LLP –
1. Special Resolution by Partners –
If LLP is willing to wind up its affairs through voluntary winding up then the first is to pass a special resolution by 3/4th partners of the firm. The process of voluntary winding up is deemed to be commenced with the passing of special resolution.
2. File Special Resolution with ROC – Form No. 1
The next step is to file the copy of above-mentioned resolution with the Registrar of Companies in Form No. 1 within 30 days from the date of passing of resolution.
3. Declaration of Solvency – Form No. 2
Thereafter, the majority of Designated partners (shall not be less than 2) must make a Declaration of Solvency in Form No. 2.
Objectives of the Declaration –
- To state that LLP is in position to pay its debts within one year from the date of commencement of winding up.
- To declare that LLP is not wound up for the purpose of defrauding others.
4. File Declaration of Solvency – Form No. 3
Then the LLP shall file Declaration accompanied with following documents with ROC in Form No. 3 within 15 days from the date of passing resolution–
- Statement of Assets and Liabilities in Form No. 4 – duly attested by 2 Designated partners;
- Report of valuation of assets – prepared by Valuer;
5. Creditors Meeting –
The next step is to send the Declaration of Solvency mentioned above to all the creditors of the LLP in order to take their approval for winding up.
6. Creditors Consent
In the meeting of creditors, at least Creditors 2/3rd in value must give consent to winding up of LLP by stating that winding up shall not affect the interest of creditors or stakeholders of the LLP.
The consent shall be given within 30 days from the date of receipt of declaration.
7. Filing of decision of creditors – Form No. 5
Then the LLP shall file the decision of Creditors with ROC in Form No. 5 within 15 days from the date of receipt of creditor’s consent.
8. Publication of Notice of Resolution –
After receiving the consent of creditors, the LLP shall publish the notice of resolution to voluntary wind up the LLP in a following manner –
It must be published
- Within 14 days from the date of receipt of creditor’s consent.
- In a Newspaper (circulating in the district where either registered office or principal office of LLP is situated).
- To inform the stakeholders about the voluntary winding up of the LLP.
9. Appointment of Liquidator
The next step is to appoint a liquidator who shall undertake the process of winding up of LLP.
The LLP liquidator shall be appointed within 30 days of
- Passing of resolution (in case of no creditors)
- Receipt of Consent of Creditors (in case of creditors)
10. Filing of Appointment of Liquidator – Form No. 7
The LLP shall file the appointment of liquidator in Form No. 7 with ROC within 10 days from the date of appointment.
Conclusively, all the powers of designated partners and partners of the LLP shall be ceased to exist and the same shall be deemed to be vested in Liquidator.
11. Liquidator’s Report on Progress – Form No. 8
The Liquidator’s responsibility is to-
- Oversee and settle the list of creditors and list of partners,
- Maintain the books of accounts
- Sell the assets of LLP
- To distribute the proceeds of assets’ sale among creditors and partners
Thereafter, the liquidator has to report in Form No. 8 on the progress of winding up to the partners and creditors quarterly that is on
- 31st March
- 30th June
- 30th September
- 31st December
12. Liquidator’s Final Report – Form No. 9
When the affairs of the LLP are completely wound up then the Liquidator shall prepare a final report and send it to partners and creditors. The report shall include –
- Manner in which winding up has been conducted
- Manner in which property of LLP has been disposed off
- Winding up accounts and explanations in Form No. 9
- Debts are fully discharged
13. Dissolution of LLP – Form No. 10
After the consideration of above report, if creditors or partners are satisfied with the winding up then they shall pass a resolution to dissolve the LLP within 30 days from the date of receipt of report. It must be passed by at least 2/3rd of creditors or partners as the case may be.
The next step is that the Liquidator shall observe the following within 15 days from the date of passing of above referred resolution
- To send a copy of final winding up accounts, explanation and report in Form No. 10 to the Registrar.
- To file an application with the Tribunal along with the copy of final winding up accounts, explanation and report.
Lastly, the Tribunal shall pass an order of dissolution of LLP within 60 days from the date of receipt of application.
Then, the Liquidator shall file the copy of order with ROC within 30 days from the date of order in Form 11.
Thereafter, the Registrar shall publish the Tribunal’s order in Official Gazette about the dissolution of LLP.
Thus, the LLP shall stand dissolved from the date of Tribunal’s order or from the date mentioned in the order.
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What is Compulsory Winding Up of LLP?
When the National Company Law Tribunal legally binds the LLP to stop and wound up the operations of LLP as per the LLP Act, 2008 then it is referred as Compulsory Winding up of LLP.
What are the Grounds for Compulsory Winding up of LLP by Tribunal?
Grounds for Compulsory Winding up of LLP by Tribunal –
i. When LLP decides that it shall be wound up by the Tribunal.
ii. If the number of partners of LLP has reduced below two for a period of more than 6 months.
iii. When LLP is not able to pay off its debts.
iv. If the LLP has acted against the interest of Sovereignty & Integrity of India, the Security of the State or Public Order.
v. When the LLP defaults in filing Statement of Account and Solvency or Annual Return with ROC for 5 consecutive financial years.
vi. In the opinion of Tribunal, it is just and equitable to wind up the LLP.
Who can file application to the Tribunal for the Winding Up of an Limited Liability Partnership?
Rule 26 of Limited Liability Partnership (Winding up and Dissolution) Rules, 2010 empowers the following persons can apply before Tribunal for the winding up of the LLP –
- LLP or any of its partner(s)
- Secured Creditor(s)
- Registrar of Companies
- Any person authorized by Central Government
- Central Government under Section 51 of LLP Act, 2008
- Central Government or State Government [ in case of Section 64(d)]
What actions can the Tribunal take on receipt of Petition for Winding Up of LLP?
The Tribunal is authorized to make any of the following order on receipt of application for winding up of LLP –
- Dismissal of petition;
- Interim Order;
- Direction to revive or rehabilitate the LLP as per Sections 60 to 62 of LLP Act, 2008;
- Appoint a provisional liquidator of the company to complete the process of liquidation;
- Order of winding up of the company;
- Any other which Tribunal thinks fit;
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What are the Implications of Winding-Up of LLP?
- LLP shall cease to carry on its affairs or business.
- LLP shall cease to exist from the date of its dissolution.
Winding up of LLP is indeed a tough task as it requires various compliances. We hope all of your doubts relating thereto are cleared and in case you are looking for a professionals’ team for undertaking the winding up task on your behalf then Manthan Experts is the right platform.
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