Sums - Liquidators Remuneration

⋮

Mindvault360

• Liquidation - Introduction
• Sums - Liquidators Remuneration

 

1. Assets realized: Rs. 6,30,000 including cash balance 30,000 Liquidator's remuneration 2% on the assets realized. Calculate the Liquidator's remuneration.

Solution:

    Assets realized:        6,30,000

    -) cash balance        30,000

------------

Total Assets

realized                       6,00,000

                       -------------

Liquidator's remuneration:   6,00,000 x 2/100 ==> 12,000

2. Compute Liquidator’s Remuneration from the information given below:

Secured Creditors: Rs. 60,000 (Securities realised: Rs. 80,000)

Other Assets realised: Rs. 75,000

Liquidator’s remuneration: 2 ½ % on the amounts realised (including securities with creditors

Solution:

Liquidator's Remuneration:

On Assets realized => 75,000 x 2.5%   ====>    1,875

On Securities realized ==> 80,000 x 2.5% ===>2,000

Liquidator's remuneration ==>                     3,875/-

3. The liquidator of a company is entitled to a remuneration of 2% on assets realised and 3% on the amount distributed to unsecured creditors.

Assets realised: Rs. 1,00,000 (including cash balance of Rs. 5,000)

Amount available for distribution to unsecured creditors (before paying liquidator’s remuneration): Rs. 43,100

Calculate liquidator’s remuneration.

Solution:

Liquidator's Remuneration:

Assets Realized 1,00,000

- cash in hand        5,000

---------

Total Assets realized 95,000

                       --------

On Assets realised: 95,000 x 2/100 ==========>     1,900     

On amt available to unsecured Creditors

                       43,100 x 3/103          =========>   1,255

                                                 ----------------

                      Liquidator's remuneration    3,155

                                                 ---------------

4. The liquidator of a company is entitled to a remuneration of 3% on the amounts realised (excluding cash in hand) and 2% on the amount distributed to the unsecured creditors.

Unsecured creditors (including preferential creditors of Rs. 5,000): Rs. 40,000

Debenture holders paid: Rs. 51,875 (with interest)

Preferential creditors paid in full

Expenses of liquidation: Rs. 510

Cash on hand: Rs. 1,000

Assets realised: Rs. 79,000

Calculate the liquidator’s total remuneration.

Solution:

Liquidator's Remuneration:

Assets realized:                 79,000

-  cash in hand                     1,000

                          ------------

Total assets realized             78,000

On assets realized: 78,000 x 3    ====>                            2,340

Amount available for unsecured Creditors:

Assets realized ==>       78,000

Subtract:

  Liquidation charges   ===>             510

    Liquidator's Remuneration   ===>        2340 

      Preferential Creditors    ===>            5000

          Debentures   ===>                51,875   

                        ------------

Amount available for unsecured Crs.       18,275

                        ------------

On Amount available for unsecured Crs.   18,275 x 3/103  ====>  532

                                    -----------------------

Liquidator's remuneration                                               2875

                                    ---------------------------

← Back Next →

Liquidation - Introduction

⋮

Mindvault360

• Liquidation - Introduction
• Sums - Liquidators Remuneration

What is Liquidation?

Liquidation is the process of winding up a company's affairs by selling its assets, settling liabilities, and distributing any remaining funds to shareholders. It marks the end of a company's legal existence.

Types of Liquidation

1. Voluntary Liquidation – Initiated by the company's members or creditors when the business is no longer viable.
2. Members’ Voluntary Liquidation (MVL): When the company is solvent but chooses to close.
3. Creditors’ Voluntary Liquidation (CVL): When the company is insolvent and unable to pay debts.
4. Compulsory Liquidation – Ordered by a court when a company fails to pay creditors or violates legal regulations.

Key Participants in Liquidation

• Liquidator – A professional appointed to oversee the process, sell assets, and distribute funds.
• Creditors – Entities or individuals to whom the company owes money.
• Shareholders – Owners of the company who receive any remaining funds after debt settlement.

Process of Liquidation

• Appointment of Liquidator
• Sale of Assets
• Settlement of Liabilities (Creditors & Debentures Paid Off)
• Distribution of Remaining Funds to Shareholders
• Dissolution of the Company

Effects of Liquidation

• The company ceases operations permanently.
• Employees may lose their jobs.
• Creditors receive payments based on priority.
• Any surplus funds are distributed among shareholders.

Order of Payment

1.  Secured Creditors
2.  Cost of Liquidation (legal Charges, Liquidator's remuneration, winding up)
3.  Preferential Creditors.
4.  Debentures
5.  Unsecured creditors.
6. Pref. Shareholders.
7. Equity Shareholders.

Explanation:

1.  Secured Creditors – Lenders with a legal claim on specific company assets, paid first from asset sales.(e.g., a bank with a mortgage on company property).

2. Cost of Liquidation – Expenses incurred in winding up, including legal fees and liquidator’s remuneration.(e.g., lawyer and auditor fees).

3. Preferential Creditors – Employees (unpaid wages), government (taxes), and other priority creditors.(e.g., unpaid salaries of staff).

4. Debentures – Company-issued debt; secured debentures are paid first, unsecured ones later.(e.g., bonds issued to raise funds).

5. Unsecured Creditors – Creditors without collateral, paid after secured and preferential creditors.(e.g., suppliers waiting for payment).

6. Preference Shareholders – Investors with fixed dividends, paid before equity shareholders in liquidation.

7. Equity Shareholders – Owners of the company, last to be paid and receive funds only if surplus remains.

Liquidator’s Remuneration :

The fee paid to the liquidator for managing the company’s liquidation process, including selling assets and paying creditors.  

Example: A court appoints a liquidator to close a failing company, and they receive a percentage of asset sales as payment.

← Back Next →