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Closing Business - Winding up procedure of an LLP
 
Winding up is a process where all the assets of the business are disposed of to meet the liabilities of the business and surplus (if any), is distributed among the owners/ stakeholders. This may be undertaken either (i) by the partners themselves, if they plan to cease operations and shut down the business or (ii) in the case of a suspected insolvency, by the creditors who want the assets to be disposed of to meet any amounts owed to them, or (iii) for statutory violations. Winding up can be voluntary or imposed by a Court/ Tribunal.
 
The Limited Liability Act, 2008 (hereinafter ‘the Act’) prescribes two modes of winding up a Limited Liability Partnership (hereinafter LLP). These are – (1) voluntary, and (2) by the Tribunal.

 

Tribunal is defined in the LLP Act to mean the National Company Law Tribunal (NCLT). However, the NCLT has not been constituted yet. Until the NCLT is constituted, the High Court shall perform the functions that the NCLT is mandated to perform under the LLP Act.

Voluntary winding up by partners

Partners may decide to wind up an LLP voluntarily through the following process:
 

(i) Passing a resolution to this effect with approval of at least three-fourths of the total number of partners.

(ii) The majority partners of the LLP are subsequently required to make a declaration in Form 2 verified by an affidavit to the effect that the LLP has no debt, or that it will be able to pay all its debts within a period of time that must not exceed one year. Such a declaration must be delivered to the Registrar for registration in Form 3 within 15 days immediately preceding the date on which the resolution is passed. It must also declare that the LLP is not being wound up to defraud any person and must be accompanied by statement of assets and liabilities and a report of valuation of its assets.

If an LLP has any creditors, the declaration must be sent to all creditors:

  1. Where two-thirds of the creditors give their consent for winding up, the LLP can be wound up by the partners;
  2. Where two-thirds of the creditors give their consent that the LLP will not be able to repay its debts from the proceeds of assets to be sold and propose that LLP be wound up voluntarily by creditors, the LLP can only be wound up by the creditors.
  3. Where two-thirds of the creditors give their consent that LLP will not be able to repay its debts from the proceeds of assets to be sold and propose that LLP be wound up by the Tribunal, the LLP must file an application before the Tribunal to this effect within a period of fourteen days.

However, where the LLP pays the dues of creditors to their satisfaction, the creditors cannot take the course mentioned in (b) or (c).
Notice of the decision of the creditors must be given by the LLP to the Registrar in Form 5.

 

(iii) After obtaining the consent of the creditors and passing the resolution, the LLP must give notice of the resolution by way of advertisement in a newspaper.

(iv) The LLP is also obligated to appoint an LLP Liquidator with the consent of the majority of partners. The Liquidator is responsible for managing the affairs of winding up the LLP.
 

Partners may decide to wind up the LLP through the intervention of the Court
If the LLP decides to be wound up by the Court, a petition to this effect must be presented by the LLP or any of its partners.
A petition filed by the LLP or any of its partner(s) shall be admitted only if it is accompanied by a statement of affairs of the LLP and a resolution of three-fourths of the total number of partners. For a petition by a creditor to be admitted, the Registrar must be of the opinion that there is a prima facie case for winding up of the LLP.

 

 

Winding up by the creditors

An LLP may be wound up by its creditors if it is unable to pay its debts. Broadly, an LLP shall be deemed to be unable to pay its debts:
 

(a) If a creditor, to whom the LLP is indebted for an amount exceeding one lakh rupees, has served on the LLP a demand requiring the LLP to pay the amount so due and the LLP has failed to pay such amount within twenty-one days after the receipt of such demand or provided adequate security or compound the debt to the reasonable satisfaction of the creditor;


(b) If any Court/ Tribunal order in favour of a creditor and against the LLP is returned unsatisfied;


(c) If it is proved to the satisfaction of the Tribunal that the LLP is unable to pay its debts. In determining this, the Tribunal shall take into account the contingent and prospective liabilities of the LLP.


Winding up for statutory defaults

The LLP can be wound up by the Court for the following statutory violations:


a.
 if the number of partners of the LLP falls to below two for a period of more than six months;

b. if the LLP has failed to file the Statement of Account and Solvency with the Registrar or the annual return for any five consecutive financial years;

c.  and if the Tribunal finds it just and equitable for the LLP to be wound up;

d. if the LLP has acted against the interests of the sovereignty and integrity or security of India or against the public order.

A petition to wind up an LLP can be presented by the Registrar or by an authorized official of the Central Government. The Registrar shall be entitled to present such a petition to wind up the LLP on any of the grounds, except on the ground of acting against the interests of the sovereignty and integrity or security of India or against the public order.


Protection to LLP

 

The LLP Rules also mandate that the Registrar is required to obtain the previous sanction of the Central Government before he can present the petition for winding up and such sanction shall not be rendered by the Government unless the concerned LLP has been given a “reasonable opportunity” of making any representations.

Completion of Winding Up

The Liquidator is required to complete winding up within a period of one year. The procedure for dissolving the LLP is as follows:

(i)  
After completion of winding up, the Liquidator will file a report in Form 9 explaining the manner of settling accounts and disposing of the property;


(ii)
 Two thirds in value of the partners / creditors, as the case may be, must pass a resolution within 30 days, approving the Liquidator’s report. If they disapprove of the report, the Liquidator will ask the Court/ Tribunal to determine the issue.


(iii)
 Within fifteen days after the resolution, the liquidator shall:

 

a.send to the Registrar a copy of the final winding up accounts, explanation and report in Form No. 10, and
 

b.file an application with the Tribunal along with a copy of the final winding up accounts, explanations and report, for passing an order of dissolution of the limited liability partnership.


(iv)
 If the Court / Tribunal is satisfied, it shall pass an order for dissolution within sixty days.

 

(v)  The LLP Liquidator shall file a copy of the order with the Registrar within thirty days in Form No. 11.


(vi)
 The Registrar, on receiving the copy of the order passed by the Tribunal shall forthwith publish a notice in the Official Gazette that the LLP stands dissolved.





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