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Winding Up and Dissolution of LLP

The document discusses the winding up and dissolution of limited liability partnerships (LLPs) under Indian law. It defines key terms and outlines the rules and processes for winding up an LLP, either voluntarily or compulsorily through insolvency proceedings. An LLP can be wound up voluntarily, through insolvency proceedings under the Insolvency and Bankruptcy Code, or compulsorily by order of the tribunal. Voluntary winding up involves appointing a liquidator, declaring the LLP is solvent, and distributing assets to pay debts before applying for dissolution.

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326 views

Winding Up and Dissolution of LLP

The document discusses the winding up and dissolution of limited liability partnerships (LLPs) under Indian law. It defines key terms and outlines the rules and processes for winding up an LLP, either voluntarily or compulsorily through insolvency proceedings. An LLP can be wound up voluntarily, through insolvency proceedings under the Insolvency and Bankruptcy Code, or compulsorily by order of the tribunal. Voluntary winding up involves appointing a liquidator, declaring the LLP is solvent, and distributing assets to pay debts before applying for dissolution.

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© © All Rights Reserved
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CHAPTER

WINDING UP AND
DISSOLUTION OF LLP
24
24.1 INTRODUCTION
LLP is a body corporate and an artificial person which is created by a legal
process called ‘Incorporation’ and its existence comes to an end by another
legal process called ‘Dissolution’. On the dissolution of LLP, its name is
struck off from the records of ROC and the fact is published in the official
Gazette.

24.2 RULES FOR WINDING UP AND DISSOLUTION OF LLP


1. According to Sec. 65, the Central Government may make rules for
the provisions in relation to winding up and dissolution of LLPs.
2. Section 67 of the LLP Act, 2008 confers the powers on the Central
Government to direct that any of the provisions of the Companies
Act, 1956 similar or with modifications specified in the notification
shall apply to any LLP. The Central Government issued notification
vide GSR 6(E), dated 6th January, 2010, directing that certain sections
of the Companies Act, 1956 shall apply to winding up of LLPs with
modifications specified in the notification.
3. The Central Government has also notified the “Limited Liability
Partnership (Winding up and Dissolution) Rules, 2012” vide notifica-
tion No. [F.No. 1/7/2012-CL-V] dated 10/07/2012. The Annexures to

416
417 CH. 24 - WINDING UP AND DISSOLUTION OF LLP Para 24.5

the Rules also contain the forms to be filed and prescribed fees to be
paid by the LLP in various circumstances.

24.3 KEY DEFINITIONS


LLP Liquidator. “LLP liquidator” means a liquidator appointed in connec-
tion with voluntary winding up of LLP from the panel maintained by the
Central Government.
Officer. “Officer” includes any designated partner, partner employee of the
LLP and any person in accordance with whose directions or instructions
the partners of the LLP have been accustomed to act.
Tribunal. “Tribunal” means the National Company Law Tribunal consti-
tuted under sub-section (1) of section 10FB of the Companies Act, 1956
(1 of 1956) [Sec. 2(1)(U)]. Provided that until the tribunal is constituted
under the aforementioned Act, the word “Tribunal” shall be substituted
with the words “High Court”.
Registrar. “Registrar” means a Registrar, or an additional, or joint, a deputy
or an assistant registrar, having the duty of registering companies under
the Companies Act, 1956 (1 of 1956) [Sec. 2(1)(S)].

24.4 MEANING OF WINDING UP


Winding up is a process, where all the assets of the business are disposed
of by the LLP liquidator to meet the liabilities of the LLP and surplus if any,
is distributed amongst the partners of LLP.

24.5 WINDING UP vs. DISSOLUTION


Basis Winding up Dissolution
1. Meaning Winding up is the process, Dissolution is the last stage of
which brings an end to the liquidation. After many legal
life of LLP and creditors compliances the liquidator
are paid off out of the pro- applies to the court for dissolu-
ceeds realized from the sale tion order of LLP and then the
of assets. LLP is dissolved
2. Legal Entity Winding up is a long pro- On dissolution, LLP ceases to
cess. After, winding up and exist and its name is struck off
prior to dissolution the legal from the records of ROC and
existence of the LLP conti- the fact is notified in the official
nues and it can be sued by gazette.
others in a court of law.
Para 24.6 UNIT III - LIMITED LIABILITY PARTNERSHIP ACT, 2008 418

24.6 MODES OF WINDING UP OF LLP [SEC.63]


Limited Liability Partnership may be wound up in the following ways:
I. Voluntary Winding up
II. Insolvency and Bankruptcy Code (IBC), 2016: Though this code pro-
vides steps for restructuring and revival of Corporate Debtor (LLP)
yet under certain circumstances NCLT can pass order for liquida-
tion of LLP. Therefore, it is included under the modes of winding
up.
III. Compulsory winding up by the Tribunal.

I. VOLUNTARY WINDING UP
Chapter V of part II of the Insolvency and Bankruptcy Code (IBC), 2016
provides for the various provisions for liquidation of corporate persons.
According to sec. 59(1) of the code, a corporate person who intends to
liquidate itself voluntarily and meets the conditions and procedural re-
quirements as prescribed by IBBI may initiate voluntary liquidation proce-
dure under the provisions of Chapter V of Part II of the IBC, 2016.
The various provisions of secs. 35-53 of the Chapter III and Chapter IV shall
apply to voluntary liquidation proceedings for corporate persons with such
modifications as may be required. It further provides that if the affairs of
the corporate persons have been completely wound up and its assets
completely liquidated, the liquidator is required to make an application to
Adjudicating Authority, i.e., NCLT for dissolution of such corporate person.
The NCLT is the Adjudicating Authority who is Competent to Declare the
Corporate Person as dissolved after due liquidation and distribution of its
assets.

DEFINITION OF CORPORATE PERSONS


Section 3(7) of the Insolvency and Bankruptcy Code, 2016 defines and
includes Corporate Persons as a Company Registered under the Compa-
nies Act, 2013 includes companies incorporated under previous company
law and a Limited Liability Partnership registered under the Limited
Liability Partnership Act, 2008.
However, it excludes entities who are financial service providers.
Note: The term ‘Corporate person’ has been used for Limited Liability
Partnership in this chapter.
419 CH. 24 - WINDING UP AND DISSOLUTION OF LLP Para 24.6

Voluntary Liquidation Regulations, 2017 issued by IBBI w.e.f. 1st April,


2017
Insolvency and Bankruptcy Board of India (IBBI). It is the most important
institutional arrangement for the new insolvency and bankruptcy regime.
It was established on 1st October, 2016 in accordance with the provisions
of the Insolvency and Bankruptcy Code, 2016. It was constituted as a
technical committee under the IBBI Regulations, 2017.
Pre-requisites for Voluntary Liquidation as Stipulated by IBC, 2016
The following conditions are pre-requisites to be satisfied by a corporate
person who wishes to opt for voluntary liquidation:
(i) The corporate person must be solvent.
(ii) A declaration by majority of the designated partners affirming that
the corporate person is in a position to pay all its debts in full from
the proceeds of the assets to be sold in liquidation.
(iii) The voluntary liquidation is not undertaken to defraud any person.

STEPS INVOLVED IN THE PROCESS OF VOLUNTARY LIQUIDA-


TION
1. Commencement of Liquidation
(a) Obtaining declaration of solvency (DOS) [Sec. 59(3) of the Code].
A declaration of solvency duly verified by an affidavit has to be
obtained from majority of designated partners of corporate person.
(b) Declaration to be accompanied with documents [Sec. 59(3) of the
Code]. DoS shall be accompanied by:
(i) audited financial statements and record of business opera-
tions of the corporate person for the previous two years or for
the period since its incorporation, whichever is later.
(ii) a report of the valuation of assets of the corporate person, if
any, prepared by a registered valuer.
(c) Passing of resolution [Sec. 59(3)(c) of the Code]. A resolution shall
be passed by majority of the partners of corporate person for vol-
untary liquidation and appointing an insolvency professional to act
as liquidator within 4 weeks of obtaining the declaration.
(d) Approval of voluntary winding up by the creditors [Proviso to
Sec. 59(3) of the Code].
In case the LLP owes debt to any person, the creditors representing
2/3rd in value of the debt of the corporate person shall approve the

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