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TMI BlogVOLUNTARY WINDING UP OF LIMITED LIABILITY PARTNERSHIPX X X X Extracts X X X X X X X X Extracts X X X X ..... VOLUNTARY WINDING UP OF LIMITED LIABILITY PARTNERSHIP - By: - Mr. M. GOVINDARAJAN - Limited Liability Partnership - LLP - Dated:- 11-8-2016 - - The Central Government made the Limited Liability Partnership (Winding up and Dissolution) Rules, 2012 ( Rules for short) in supersession of the Limited Liability Partnership (Winding up and Dissolution) Rules, 2010. The Rules came into effect from 10.07.2012. The Rules deal with two types of winding up of Limited Liability Partnership ( LLP for short) namely voluntary winding up and winding up by the Tribunal. In this article the procedure on the voluntary winding up of LLP is discussed in detail. Resolution for voluntary winding up Rule 5 provides that any LLP may be wound up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... voluntarily if the LLP passes a resolution to wind up the LLP. For this purpose the approval of three fourths of the partners is necessary. If the LLP has creditors, whether secured or unsecured, in addition to the special resolution by the partners, the consent of the majority of the creditors are to be obtained in a meeting. A copy of the resolution passed by the LLP is to be filed with the Registrar in Form No. 1 Commencement of winding up Rule 6 provides that a voluntary winding up shall be deemed to commence on the date of passing of resolution for voluntary winding up. Declaration of solvency Rule 7 provides that the majority of its designated partners, being not less than two, shall make a declaration in Form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 2 verified by an affidavit to that effect that the LLP has no debt or that it will able to pay the debts in full within such period, as may be specified in the declaration, but not exceeding one year from the commencement of the winding up. The declaration is to contain a statement declaring that the LLP is not being wound up to defraud any person or persons. The declaration shall also accompany by a statement of assets and liabilities prepared in Form No. 4 for the period commencing from the date up to which the last account was prepared and ending with the latest practicable date immediately before the making of declaration duly attested by two designated partners. It is also to be accompanied by a report of the valuation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets of the LLP prepared by a valued, if there is assets in LLP. The LLP or its designated partners may repay any dues of the creditors or justify the claims of the creditors in any manner, before any declaration is made by designated partners. The declaration is to be delivered to the Registrar for registration in Form No. 3 within 15 days immediately preceding the date of passing of the resolution of the winding up of LLP. Meeting of creditors [Rule 8] Since the consent of the creditors is to be secured the LLP shall convene a meeting for creditors to take the approval of the creditors. For this purpose a copy of the declaration shall be sent by registered post or speed post or any other mode, the estimated amount of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e claims due to each of the creditors and an offer for creditors to accept such claim. The creditors shall given the opinion to the LLP or acceptance of offer made by the LLP within 30 days of the receipt of the declaration. Two thirds in value of the creditors are to given their consent as to that- The voluntary winding up is in the interest of all the partners and creditors; The LLP will not be able to pay for its debts in full from the proceeds of assets to be sold in winding up and propose that the LLP be wound up voluntarily by creditors, the LLP shall be termed as wound up voluntarily by creditors; or The LLP will not be able to pay for its debts in full from the proceeds of the assets to be sold in the voluntary win ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding up and propose that it will be in the interest of partners and creditors if the LLP is wound up by the Tribunal, the LLP shall, within 14 days, file an application before the Tribunal for winding up. The LLP shall give notice of the decision of the creditors to the Registrar in Form No. 5 within 15 days from the date of receipt of consent of the creditors. Publication Rule 9 provides that where the LLP has by resolution resolved for voluntary winding up and consent of creditors is received for voluntary winding up, the LLP shall within 14 days of the receipt of creditors consent, give notice of the resolution by advertisement in a newspaper circulating in the district where the registered office or the Principal Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of the LLP is situated. Appointment of LLP Liquidator Rule 10 provides for the appointment of liquidator. The liquidator may be appointed either by the partners or by the creditors. Rule 10(1) provides that the LLP shall within 30 days of passing of resolution of voluntary winding up where LLP has no creditors or filing of notice intimating the decision of winding up with the consent of majority of partners through resolution, appoint a voluntary liquidator called as LLP liquidator. The remuneration payable to the liquidator is to be fixed by the LLP. If the liquidator appointed by the LLP is not approved by the creditors, then the creditors shall appoint another LLP liquidator with two thirds of the creditors in value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the LLP and fix the remuneration payable to the liquidator. If the LLP and the creditors appoint different liquidators, the LLP liquidator nominated by the creditors shall be LLP liquidator. If the creditors neither approve the liquidator nominated by the LLP nor nominate any other LLP liquidator, the LLP liquidator nominated by the partners of the LLP shall be LLP liquidator. If no LLP liquidator is nominated for whatsoever reason, the Tribunal may appoint an LLP liquidator on such remuneration as may be determined by the Tribunal. Declaration of LLP liquidator Rule 10(8) provides that the LLP liquidator, after his appointment, shall file a declaration in Form No. 6 disclosing conflict of interest or lack of independe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce in respect of his appointment, if any, with the LLP or the creditors, as the case may be, and such obligation shall continue throughout the term of his or his appointment. Removal of LLP liquidator The LLP liquidator may be removed by the Tribunal as well as by the partners/creditors. Rule 10(5) provides that the Tribunal may, on cause being shown, remove an LLP liquidator and appoint any other LLP liquidator in his place. The Tribunal may also appoint or remove an LLP liquidator on an application made by the Registrar. The Tribunal shall give an opportunity of being heard to the LLP liquidator before being removed. An LLP liquidator may be removed by the partners of the LLP where his appointment has been made by the LLP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and by creditors, where his appointment is made or approved by creditors. Where three fourths of the total number of partners or creditors after consideration of the reply, if any, filed by the LLP liquidator, in their meeting decides to remove the LLP liquidator, the LLP liquidator shall vacate his office. Filling up of vacancy Rule 11 provides that if a vacancy occurs by death, resignation, removal or otherwise in the office of any LLP liquidator (other than a liquidator appointed by, or by the direction of the Tribunal), the LLP or the creditors may fill the vacancy in the manner specified for the appointment of LLP liquidator. Notice to Registrar by LLP Rule 12 provides that the LLP shall give notice to the Registr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar of the appointment, or any vacancy occurred by death, resignation, removal or otherwise of, the LLP indicating the name and particulars of that LLP liquidator within 10 days of such appointment or change in Form No. 7. Cessation of powers of designated partners Rule 13 provides that on the appointment of a LLP liquidator, all the powers of the designated partner and other partner, if any, shall cease, except for the purpose of giving notice of such appointment of the LLP liquidator to the Registrar. Duties of LLP liquidator Rule 14 prescribes the duties of the LLP liquidator as detailed below: The LLP liquidator shall perform such functions and discharge such duties as are determined from time to time by the LLP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or its creditors, as the case may be; The LLP liquidator shall settle the list of creditors or partners, which shall be prima facie evidence of the liability of the persons named to be creditors or partners; The LLP liquidator shall obtain the approval of partners or creditors for any purpose he may consider necessary; The LLP liquidator shall maintain regular and proper books of accounts in the form and manner specified and the partners or the creditors or any officer authorized by the Central government may inspect such books of account; The LLP liquidator shall pay the debts of the LLP and shall adjust the rights of the partners among themselves; The LLP liquidator shall observe due care and diligence in the discharge o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f his duties. Audit of Accounts Rule 15 provides that the accounts of the LLP liquidator shall be audited by a Chartered Accountant and for the purpose of the audit, the LLP liquidator shall furnish the auditor such vouchers and information as the auditor may require. The accounts is not required to be audited where the value of total transactions during the period is for ₹ 50,000/- or less. Where the audit is not required the statements of accounts shall contain a declaration that the LLP liquidator acknowledges his responsibility for maintaining the books and records and funds are utilized only for the purpose of winding up of the affairs of the LLP. Committees Rule 16 provides that the partners or the credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors, as the case may be, may appoint such committee as they consider appropriate to supervise the voluntary winding up and assist the LLP liquidator in discharging his functions. Report of LLP liquidator [ Rule 18 ] The LLP liquidator shall report quarterly on the progress of winding up of the LLP in Form No. 8 to the partners or creditors which shall be made before the end of the following quarters. Where the report of the liquidator contains any fraud with sufficient evidence, the Tribunal may order for investigation. On consideration of the report of the investigation, the Tribunal may pass such order and give such directions as it may consider necessary including the direction that such person shall attend before the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al for the purpose of examination. If the fraud committed is by other than the persons of partners, the LLP liquidator may intimate the same to the partners or designated partners and include their views in their report. The Tribunal shall have power to transfer the winding up proceedings from voluntary winding up to compulsory winding up by the Tribunal. Dissolution of LLP Rule 19 provides that as soon as the affairs of a LLP are fully wound up, the LLP liquidator shall prepare a report stating the manner in which the winding up has been conducted and property has been disposed off, final winding up accounts and explanations in Form No. 9 showing that the property and assets of the LLP have been disposed of and its debts ful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly discharged to the satisfaction of the creditors and thereafter seek the approval of the partners or creditors of the LLP, as the case may be, on the said report and the final winding up accounts and explanation in the meeting of the partners and creditors. If the two thirds of the partners/creditors, after considering the report, accounts and explanations of the LLP liquidator, are satisfied that the LLP shall be wound up, they shall pass a resolution, within 30 days of the receipt of such report. If there is no sufficient number of partners/creditors the LLP liquidator may make an application before the Tribunal to determine the issue. The order of the Tribunal, in this regard, is binding on the parties. Within 30 days of the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... solution, the LLP liquidator shall send to the Registrar a copy of the final winding up of accounts, explanation and report in Form No. 10 and file an application before the Tribunal for passing an order of dissolution of the LLP. If the Tribunal is satisfied after considering the application, final winding up accounts, reports of the LLP liquidator, that the process of winding up has been duly follows, the Tribunal may pass an order, within 60 days of the receipt of such application, that the LLP shall stand dissolved. The LLP liquidator shall file a copy of the order with the Registrar in Form No. 11. The Registrar, on receiving the copy of the order passed by the Tribunal shall forthwith publish a notice in the Official Gazette t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the LLP stands dissolved. In the event affairs of the LLP are not fully wound up within a period of one year from the date of commencement of voluntary winding up, LLP liquidator shall file an application before the Tribunal explaining the reasons and seek appropriate orders of the Tribunal. Distribution of property of LLP Rule 21 provides that the assets of an LLP shall, on its winding up, be applied in satisfaction of its liabilities pari passu and subject to such application, shall, unless the LLP agreement otherwise provides, be distributed among the partners according to their rights and interest in the LLP. Application to Tribunal Rule 23 provides that the LLP liquidator or any partner or creditor may app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly to Tribunal- to determine any question arising in the course of the winding up of a LLP; or to exercise as respect the enforcing, the staying of proceedings or any other matter, all or any of the powers which the Tribunal might exercise, if the LLP were being wound up by the Tribunal. They may apply to the Tribunal for an order setting aside any attachment, distress or execution put into force against the estate or effects of the LLP after the commencement of the winding up. The Tribunal may allow the application on such terms and conditions as it thinks fit or may make such other order on the application as it thinks fit. Where an order staying the proceedings in the winding up is made a copy of such order shall be fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in LLP in Form No. 11 with the Registrar within 30 days of such order. Costs Rule 24 provides that all costs, charges and expenses properly incurred in the winding up, including the fee of the LLP Liquidator, shall, subject to the rights of the secured creditors, if any, and workmen, be payable out of assets of the LLP priority to all other items. - - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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