LIQUIDATION OF COMPANY

Introduction to Chapter
Liquidation is the legal procedure by which the company comes to an end.

‘B’ List Contributories

The shareholders who transferred partly paid shares (otherwise than by operation of law or by death)
within one year, prior to the date of winding up may be called upon to pay an amount (not exceeding the
amount not called up when the shares were transferred) to pay off such creditors as existed on the date of
transfer of shares and cannot be paid out of the funds otherwise available with the liquidator, provided
that the existing shareholders have also failed to pay the amount due on the shares.

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Question Inter May 2018 (5 Marks)
In a liquidation which commenced on 11th November, 2019 certain creditors could not receive payments
out of the realization of assets and out of the contributions from "A" list contributories.
The following are the details of certain transfer, which took place in 2018 and 2019:
Share holders Number of shares Date of ceasing to be Creditors
transferred at the date of member remaining unpaid
ceasing to be member and outstanding
C 2,500 1st September, 2018 5,000
P 1,500 1st January, 2019 9,000
D 2,000 1st April, 2019 12,000
B 700 1st August, 2019 13,500
S 300 15th September, 2019 14,500
All the shares were ₹ 10 each, ₹ 5 paid up. Ignoring expenses of and remuneration to liquidators show
the amount to be realised from various persons listed above.

Solution
Statement showing the liability of ‘B’ list contributories
Name Date Unpaid Incremental 1500 2000 700 300
Debt P D B S
P 1/01/19 9,000 9,000 3,000 4,000 1,400 600
D 1/04/19 12,000 3,000 -- 2,000 700 300
B 1/08/19 13,500 1,500 -- -- 1,050 450
S 15/09/19 14,500 1,000 -- -- -- 1,000
Total (A) 3,000 6,000 3,150 2,350
Maximum Liability (B) 7,500 10,000 3,500 1,500
Actual liability 3,000 6,000 3,150 1,500
(Lower of A & B)

Working Notes:
1. C will not be liable since he transferred his shares prior to one year preceding the date of winding up.
2. P will not be responsible for further debts incurred after 01.01.2019 (from the date when he ceases to
be a member). Similarly, D & B will not be liable for the debts incurred after the date of their transfer
of shares.
3. The increase between 1st August 2019 and 15th September 2019, is solely the responsibility of S.
Liability of S has been restricted to the maximum allowable limit of ₹ 1,500.

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Question Inter Jan 2021 (10 Marks)
In the winding up of a company, certain Creditors could not receive payments out of the realization of
assets and out of contribution from "A" list contributories. Liquidation started on 1st April, 2020. The
following persons have transferred their holdings before winding up:
Shareholders Number of shares Date of Transfer Amount due to creditors on the date of
transferred such transfer
O 1,000 04.04.2019 42,000
P 300 02.02.2019 25,000
Q 200 08.09.2019 57,000
R 1,400 11.11.2019 85,000
S 800 02.02.2020 66,000
T 1,400 01.03.2020 95,000
The shares were of ₹ 100 each, ₹ 70 being called up and paid up on the date of transfers. 'X' was the
transferee of shares held by S. 'X' paid ₹ 30 per share as calls in advance immediately on becoming a
member. Ignoring Expenses of Liquidation, Remuneration of Liquidator, etc. work out the amount to be
realized from the above contributories.

Solution
‘P’ will not be liable as he has transferred his share prior to one year preceding the date of winding up.
‘S will not be liable as his transferee X paid calls in advance on becoming the member.
Statement showing the liability of ‘B’ list contributories
Name Date Unpaid Incremental 1000 200 1400 1400
Debt O Q R T
O 04/04/19 42,000 42,000 10,500 2,100 14,700 14,700
Q 08/09/19 57,000 15,000 - 1,000 7,000 7,000
R 11/11/19 85,000 28,000 - - 14,000 14,000
T 01/03/20 95,000 10,000 - - - 10,000
Total (A) 10,500 3,100 35,700 45,700
Maximum Liability (B) 30,000 6,000 42,000 42,000
Actual liability 10,500 3,100 35,700 42,000
(Lower of A & B)

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Question Inter Nov 2020 (5 Marks)
In a winding up of a company creditor remain unpaid. The following persons had transferred their
holdings before winding up.
Shareholders Number of shares Date of Transfer Creditors remaining unpaid & out-
transferred standing on the date of such transfer
D 1000 01.01.2019 8,500
E 400 15.02.2019 13,500
H 700 15.03.2019 19,000
J 900 31.03.2019 22,000
K 1000 05.04.2019 31,000
The shares were of ₹ 100 each, ₹ 80 being called up and paid up on the date of transfers.
(1) A member G, who holds 200 shares died on 28th Feb., 2019 when the amount due to creditors was ₹
16000. His shares were transmitted to his Son X.
(2) R was the transferee of shares held by J. R paid ₹ 20 per share as calls in advance immediately on
becoming a member.
(3) The liquidation of the Company commenced on 1st February, 2020. Then the liquidator made a call
on the present and past contributories to pay the amount.
You are required to quantify the maximum liability of the transferors of shares mentioned in the above
table.

Solution
Statement showing the liability of ‘B’ list contributories
Name Date Unpaid Incremental 400 200 700 1000 Total
Debt E G/X H K
E 15/02/2019 13,500 13,500 2,348 1,174 4,108 5,870 13,500
G/X 28/02/2019 16,000 2,500 - 263 921 1,316 2,500
H 15/03/2019 19,000 3,000 - 316 1,105 1,579 3,000
K 05/04/2019 31,000 12,000 - 2,000 - 10,000 12,000
Total (A) 2,348 3,753 6,134 18,765 31,000
Maximum Liability (B) 8,000 4,000 14,000 20,000
Actual liability 2,348 3,753 6,134 18,765
(Lower of A & B)

Working Note:
(1) The transferors are D, E, H, J and K. When the transferees pay the amount due as “present”
member contributories, there will not be any liability on the transferors. It is only when the
transferees do not pay as “present” member contributories then the liability would arise in the case of
“past” members as contributories.
(2) D will not be liable to pay any amount as the winding up proceedings commenced after one year
from the date of the transfer.
(3) J also will not be liable as the transferee R has paid the balance ₹ 20 per share as call in advance.
(4) E, G/X, H and K will be liable, as former members, to the maximum extent as indicated, provided
the transferees do not pay the calls.
(5) X to whom shares were transmitted on demise of his father G would be liable as an existing member
contributory. He steps into the shoes of his deceased father. His maximum liability would be at ₹ 20
per share on 200 shares received on transmission i.e. for ₹ 4,000.

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 Liquidator’s Statement of Account
The statement prepared by the liquidator showing receipts and payments of cash in case of voluntary
winding up is called “Liquidators’ statement of account”. There is no double entry involved in the
preparation of liquidator’s statement of account. It is only statement presented in the form of an account.
While preparing the liquidator’s statement of account, receipts are shown in the following order:
(a) Amount realised from assets are included in the prescribed order.
(b) In case of assets specifically pledged in favour of creditors, only the surplus from it, if any, is entered
as ‘surplus from securities’.
(c) In case of partly paid up shares, the equity shareholders should be called up to pay necessary amount
(not exceeding the amount of uncalled capital) if creditors’ claims/claims of preference shareholders
can’t be satisfied with the available amount. Preference shareholders would be called upon to
contribute (not exceeding the amount as yet uncalled on the shares) for paying of creditors.

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Preferential Payments (Section 327)
In a winding up, subject to the provisions of section 326, there shall be paid in priority to all other debts-
a) all revenues, taxes, cesses and rates due from the company to the Central Government or a State
Government or to a local authority at the relevant date, and having become due and payable within
the twelve months immediately before that date;
b) all wages or salary including wages payable for time or piece work and salary earned wholly or in part
by way of commission of any employee in respect of services rendered to the company and due for a
period not exceeding four months within the twelve months immediately before the relevant date,
subject to the condition that the amount payable under this clause to any workman shall not exceed
such amount as may be notified;
c) all accrued holiday remuneration becoming payable to any employee, or in the case of his death, to
any other person claiming under him, on the termination of his employment before, or by the winding
up order, or, as the case may be, the dissolution of the company;
d) unless the company is being wound up voluntarily merely for the purposes of reconstruction or
amalgamation with another company, all amount due in respect of contributions payable during the
period of twelve months immediately before the relevant date by the company as the employer of
persons under the Employees’ State Insurance Act, 1948 or any other law for the time being in force;
e) unless the company has, at the commencement of winding up, under such a contract with any insurer
as is mentioned in section 14 of the Workmen’s Compensation Act, 1923, rights capable of being
transferred to and vested in the workmen, all amount due in respect of any compensation or liability
for compensation under the said Act in respect of the death or disablement of any employee of the
company:
k) all sums due to any employee from the provident fund, the pension fund, the gratuity fund or any
other fund for the welfare of the employees, maintained by the company; and
l) the expenses of any investigation held in pursuance of sections 213 and 216, in so far as they are
payable by the company.

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Question
X Ltd. went into Voluntary Liquidation on 31st March, 2020, when their Balance Sheet was as follows:
Liabilities Rs.
Issued and subscribed capital :
10,000 12% cumulative preference shares of Rs. 100 each, fully paid 10,00,000
10,000 equity shares of Rs. 100 each, Rs. 75 paid 7,50,000
20,000 equity shares of Rs. 100 each, Rs. 60 paid 12,00,000
Reserves & Surplus:-
Profit & Loss Account (6,25,000)
Securities Premium 1,00,000
12% Debentures secured by a floating charge 10,00,000
Interest outstanding on Debentures 1,20,000
Bank Loan (Secured by Land & Building) 10,00,000
Creditors 8,50,000
Total 53,95,000
Assets
Land & Building 19,60,000
Plant & Machinery 15,50,000
Furniture 6,75,000
Patents 2,45,000
Stock 2,80,000
Trade Receivables 6,04,000
Cash at Bank 81,000
Total 53,95,000
Preference dividends were in arrear for 1 year. Creditors include preferential creditors of Rs. 1,00,000.
Balance creditors are discharged subject to 4% discount.
Assets are realised as under:
Land & Building 24,50,000
Plant & Machinery 9,00,000
Furniture 2,85,000
Patents 90,000
Stock 2,80,000
Trade Receivables 3,15,000
Expenses of liquidation amounted to Rs. 45,000. The liquidator is entitled to a remuneration of 3% on all
assets realised (except cash at bank) & 2% on payment made to unsecured creditors including preferential
creditors. All payments were made on 30th June, 2020.
You are required to prepare the Liquidator's Final Statement of Account as on 30th June, 2020.

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Solution
Liquidator’s Statement of Account
Particulars Amount Particulars Amount
To Cash at Bank 81,000 By Liquidation expenses 45,000
To Assets Realized By Liquidator remuneration (W.N-1) 1,46,000
Plant & Machinery 9,00,000 By Preferential Creditors 1,00,000
Furniture 2,85,000 By Debenture holders
Patents 90,000 Debentures 10,00,000
Stock 2,80,000 (+) Interest O/s 1,20,000
Trade receivables 3,15,000 18,70,000 (+) Interest O/s 30,000 11,50,000
(10Lacs x 12% x 3/12)
To Surplus from assets pledged By Unsecured Creditors 7,20,000
(7,50,000*96% )
Realized value 24,50,000 By Preference Shareholders
-Bank Loan (10,00,000) 14,50,000 Capital 10,00,000
To Call from Equity shareholders (+) Pref. D/d 1,20,000 11,20,000
20,000*1 = 20,000 20,000 (10 Lacs x 12% x 1)
By Equity shareholders (Refund)
10,000*14 = 1,40,000 1,40,000
34,21,000 34,21,000
Working Note:
1. Computation of Total Remuneration payable to Liquidator
Particulars Amount
3% on Assets realised (18,70,000 + 24,50,000) 43,20,000 x 3% 1,29,600
2% on payment made to preferential creditors 1,00,000 x 2% 2,000
2% on payment made to unsecured creditors 7,20,000 x 2% 14,400
Total Remuneration payable to Liquidator 1,46,000

2) Final Settlement
Surplus after payment to Preference shareholders 1,20,000
(+) Notional call (20,000 shares x 15) 3,00,000
4,20,000
No. of Shares (20,000 + 10,000) 30,000
Refund per share 14

No. 10,000 20,000

Call - 15
Refund (14) (14)
14 Refund 1 Call

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Question RTP May 2020
A Liquidator is entitled to receive remuneration at 2% on the assets realized, 3% on the amount
distributed to Preferential Creditors and 3% on the payment made to Unsecured Creditors. The assets
were realized for ₹ 37,50,000 against which payment was made as follows:
Liquidation Expenses ₹ 37,500
Secured Creditors ₹ 15,00,000
Preferential Creditors ₹ 1,12,500
The amount due to Unsecured Creditors was ₹ 22,50,000.
You are asked to calculate the total Remuneration payable to Liquidator. Calculation shall be made to
the nearest multiple of a rupee.

Solution
Computation of Total Remuneration payable to Liquidator
Particulars Amount
2% on Assets realised 37,50,000 x 2% 75,000
3% on payment made to Preferential creditors 1,12,500 x 3% 3,375
3% on payment made to Unsecured creditors (Refer W.N) 58,882
Total Remuneration payable to Liquidator 1,37,257
Working Note:
Liquidator’s remuneration on payment to unsecured creditors = Cash available for unsecured creditors
after all payments including liquidation expenses, payment to secured creditors, preferential creditors &
liquidator’s remuneration
= 37,50,000 – 37,500 – 15,00,000 – 1,12,500 – 75,000 – 3,375 = 20,21,625
Liquidator’s remuneration = 3/103 x 20,21,625 = 58,882

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Question ICAI Study Material
Rain Ltd. went into liquidation on 31st March, 2021. Following are the details regarding share capital of
the company:-
I. 30,000 Equity shares of ₹ 100 each, ₹ 80 paid up.
II. 80,000 Equity shares of ₹ 50 each, ₹ 25 paid up.
III. 4,00,000 Equity shares of ₹ 10 each, fully paid up.
Surplus available with the liquidator after payment of all the liabilities ₹ 24,00,000. Distribute this surplus
money among different categories of shareholders.

Solution
Number of equivalent equity shares:
30,000 shares of ₹ 100 each 80 paid up = 30,000 shares of ₹ 100 each 80 paid up
80,000 shares of ₹ 50 each 25 paid up = 40,000 shares of ₹ 100 each 50 paid up
4,00,000 shares of ₹ 10 each fully paid up = 40,000 shares of ₹ 100 each fully paid up
Surplus after payment of all liabilities 24,00,000
(+) Notional call 26,00,000
(30,000 shares x 20) + (40,000 shares *50)
50,00,000
No. of Shares (30,000 + 40,000 + 40,000) 1,10,000
Refund per share 45.4545

Equivalent Shares 30,000 40,000 40,000

Original Shares 30,000 80,000 4,00,000
Call 20 50 -
Refund (45.4545) (45.4545) (45.4545)
Net 25.4545 Refund 4.5455 Call 45.4545 Refund
Amount 30,000*25.4545 40,000*4.5455 40,000*45.4545
7,63,635 Refund 1,81,820 Call 18,18,180 Refund

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Question Inter Nov 2018 (10 Marks)
Virat Ltd. furnishes the following summarized Balance Sheet as at 31st March, 2020:
Balance Sheet as at 31.03.2020
Amount (₹) Amount (₹)
A. Equity and Liabilities
1. Shareholders’ Fund
(a) Share Capital
10,000, 12% Pref. Shares of ₹ 100 each fully paid up 10,00,000
1,00,000 Equity shares of ₹ 10 each fully paid up 10,00,000
50,000 Equity shares of ₹ 10 each, ₹ 8 paid up 4,00,000 24,00,000
(b) Reserves & Surplus
Profit & Loss A/c (Dr. Balance) (3,50,000)
2. Non-Current Liabilities
12 % Debentures 15,00,000
Loan on Mortgage 4,50,000 19,50,000
3. Current Liabilities
Bank Overdraft 2,75,000
Trade Payables 7,30,000 10,05,000
Total 50,05,000
B. Assets
1. Non-Current assets
Property, Plant & Euipment
Land & Buildings 6,00,000
2. Current Assets
Sundry Current Assets 44,05,000
Total 50,05,000
The mortgage loan was secured against the Land & Buildings. Debentures were secured by a floating
charge on all the assets of the company. The debenture holders appointed a Receiver. The company
being voluntarily wound up, a liquidator was also appointed. The Receiver was entrusted with the task of
realising the Land & Buildings which fetched ₹ 7,50,000 . Receiver also took charge of Sundry current
assets of value ₹ 30,00,000 and sold them for ₹ 28,75,000. The Bank overdraft was secured by a personal
guarantee of the directors who discharged their obligations in full from personal resources. The costs of
the Receiver amounted to ₹ 10,000 and his remuneration ₹ 15,000.
The expenses of liquidator was ₹ 17,500 and his remuneration was decided at 2% on the value of the
assets realised by him. The remaining assets were realised by liquidator for ₹ 12,50,000. Preference
dividend was in arrear for 2 years. Articles of Association of the company provide for payment of
preference dividend arrears in priority to return of equity capital.
Prepare the accounts to be submitted by the Receiver and the Liquidator.

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Solution
Receiver’s Statement of Account
Particulars Amount Particulars Amount
To Assets Realized 28,75,000 By Receiver expenses 10,000
To Surplus from Assets pledged By Receiver Remuneration 15,000
Realized value By Debenture holders
(Land & Building) 7,50,000 Debentures 15,00,000 15,00,000
-Mortgage Loan (4,50,000) 3,00,000 By Surplus transferred to Liquidator 16,50,000
31,75,000 31,75,000

Liquidator’s Statement of Account

Particulars Amount Particulars Amount
To Surplus received from Receiver 16,50,000 By Liquidation expenses 17,500
To Assets Realized 12,50,000 By Liquidators remuneration 25,000
(12,50,000 x 2%)
By Unsecured Creditors
Directors for Bank OD 2,75,000
Trade Creditors 7,30,000 10,05,000
By Preference Shareholders
Capital 10,00,000
(+) Pref. D/d 2,40,000 12,40,000
(10,00,000 x 12% x 2)
By Equityshareholders
1,00,000 shares @ 4.75 4,75,000
50,000 shares @ 2.75 1,37,500 6,12,500
29,00,000 29,00,000
Working Note:
Surplus before payment to Preference shareholders 18,52,500
Less: Payment to Preference shareholders (12,40,000)
Surplus after payment to Preference shareholders 6,12,500
(+) Notional call (50,000 shares x 2) 1,00,000
7,12,500
No. of Shares (50,000 + 1,00,000) 1,50,000
Refund per share 4.75

50,000 1,00,000
Call 2 -
Refund (4.75) (4.75)
2.75 Refund 4.75 Refund

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 Statement of Affairs
FORMAT OF STATEMENT OF AFFAIRS
Particulars Estimated
RealisableValue
Assets not specifically pledged (List A)
Debtors
Bills Receivable
Stock
Furniture & Fixtures
Cash in hand
Calls in Arrears
Estimated value of assets not specifically pledged
Assets specifically pledged (List B)
Particulars Est. Real. Due to secured Deficiency ranking Surplus carried to
Value creditors as unsecured last column

Estimated total assets available for preferential creditors, debenture holders secured by
a floating charge and unsecured creditors
Summary of Gross Assets
Estimated Realizable value of assets specifically pledged
Estimated Realizable value of assets not specifically pledged
Total Assets
Liabilities
Gross Liabilities Liabilities
Secured creditors (as per List B) to the extent to which claims are
estimated to be covered by assets specifically pledged
Preferential creditors (as per List C)
Balance of assets available for debenture holders secured by
floating charge and unsecured creditors
Debenture holders secured by floating charge (as per List D)
Balance of assets available for unsecured creditors
Unsecured creditors (as per List E)
Estimated deficiency as regards creditors (difference between gross
assets and gross liabilities)
____ Preference shares of ₹__ each (as per List F)
_____ Equity shares of ₹___ each(as per List G)
Estimated surplus/ deficiency as regards members(as per List H)

Note:
1) The above is subject to cost of winding up and to any surplus / deficiency on realisation of assets.
2) There are ___ shares unpaid @ ₹ ___ per share liable to be called up or there are no calls in arrears.

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 Deficiency Account
DEFICIENCY ACCOUNT (List H)
A. Item contributing to Deficiency
1. Excess of capital & liabilities over assets
2. Net dividend & bonuses during the period
3. Net trading losses after charging depreciation, taxation, interest on debentures,
etc. during the same period
4. Losses other than trading losses written off or for which provision has been made
in the books during period
5. Estimated losses now written off or for which provision has been made for the
purpose of preparing the statement
6. Other items contributing to deficiency

B. Items reducing Deficiency

7. Excess of assets over capital & liabilities on ______
8. Net trading profit during the period
9. Profit & Incomes other than trading profit during the same period
10. Other items

Surplus/ Deficiency as shown by the Statement of Affairs (A) - (B)

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Question ICAI Study Material
‘A’ Ltd is to be liquidated. Their summarised Balance Sheet as at 30th September, 2019 appears as under
Liabilities ₹
5,00,000 equity shares of ₹ 10 each 50,00,000
Secured debentures (on land and buildings) 20,00,000
Unsecured loans 40,00,000
Trade Creditors 70,00,000
Total 1,80,00,000
Assets
Land & Building 10,00,000
Other Property, Plant & Equipment 40,00,000
Current Assets 90,00,000
Profit & Loss Account 40,00,000
Total 1,80,00,000
Contingent Liabilities are:
For bills discounted 2,00,000
For excise duty demands 3,00,000

On investigation, it is found that the contingent liabilities are certain to devolve and that the assets are
likely to be realised as follows:
Land & Building 22,00,000
Other Property, Plant & Equipment 36,00,000
Current Assets 70,00,000
Taking the above into account, prepare the Statement of Affairs.

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Solution
Statement of Affairs of A Ltd.
Particulars Estimated
Realisable
Value
Assets not specifically pledged (List A)
Other Property, Plant & Equipment 36,00,000
Current Assets 70,00,000
Estimated value of assets not specifically pledged 1,06,00,000
Assets specifically pledged (List B)
Particulars Est. Real. Due to secured Deficiency ranking Surplus carried to
Value creditors as unsecured last column
Land & Buil. 22,00,000 20,00,000 - 2,00,000 2,00,000

Estimated total assets available for preferential creditors, debenture holders secured by a 1,08,00,000
floating charge and unsecured creditors
Summary of Gross Assets
Estimated Realizable value of assets specifically pledged 22,00,000
Estimated Realizable value of assets not specifically pledged 1,06,00,000
Total Assets 1,28,00,000
Liabilities
Gross Liabilities Liabilities
20,00,000 Secured creditors (as per List B) to the extent to which claims are -
estimated to be covered by assets specifically pledged
3,00,000 Preferential creditors (as per List C) – for demand of excise duty 3,00,000
Balance of assets available for debenture holders secured by floating 1,05,00,000
charge and unsecured creditors
- Debenture holders secured by floating charge (as per List D) -
1,12,00,000 Unsecured creditors (as per List E): 1,12,00,000
1,35,00,000 Estimated deficiency as regards creditors (difference between gross 7,00,000
assets and gross liabilities)
5,00,000 Equity shares of ₹ 10 each (as per List G) 50,00,000
Estimated deficiency as regards members/ contributories 57,00,000

Working Note: Computation of Unsecured Creditors (List E)

Unsecured Loans 40,00,000
Trade creditors 70,00,000
Liability for bills discounted (Contingent) 2,00,000
1,12,00,000

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Question IPCC May 2016 (16 Marks)
From the following particulars, prepare a Statement of Affairs and Deficiency Account for submission to
official liquidator of Sun City Development Ltd., which went into liquidation on 31st March, 2020:
Liabilities ₹ ₹
6,00,000 Equity shares of ₹10 each, ₹8 paid-up 48,00,000
6% 2,00,000 Preference shares of ₹10 each 20,00,000
Less: Calls in arrear (1,00,000) 19,00,000
5% Debentures having a floating charge on the assets 20,00,000
(interest paid up to 30th September, 2019)
Mortgage on Land & Building 16,00,000
Trade Payable 53,10,000
Wage Payable 4,00,000
Secretary's Salary Payable @ ₹ 5,000 p.m. 60,000
Managing Director's Salary Payable @ ₹ 30,000 p.m. 1,20,000

Assets Estimated to Book value

produce
Land & Building 26,00,000 24,00,000
Plant & Machinery 26,00,000 40,00,000
Tools & Equipments 80,000 4,00,000
Patents & Copyrights 6,00,000 10,00,000
Inventory 14,80,000 17,40,000
Investments in the hand of a Bank for an Overdraft of 38,00,000 34,00,000 36,00,000
Trade Receivables 12,00,000 18,00,000

On 31st March, 2015 the Balance Sheet of the Company showed a General Reserve of ₹ 8,00,000
accompanied by a debit balance of ₹ 5,00,000 in the Profit & Loss Account.
In 2016, the Company made a profit of ₹ 8,00,000 and declared a dividend of 10% on Equity Shares.
The Company suffered a total loss of ₹ 21,80,000 besides loss of stock due to fire to the tune of ₹ 8,00,000
during financial years ending March 2017, 2018 and 2019. For the financial year ended 31st March,
2020, accounts were not made. The cost of winding-up is expected to be ₹ 3,00,000.

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Solution
Statement of Affairs of Sun City Development Ltd.
Particulars Estimated
Realisable
Value
Assets not specifically pledged (List A)
Trade receivables 12,00,000
Inventory 14,80,000
Plant and Machinery 26,00,000
Tools and Equipment 80,000
Patents and copyrights 6,00,000
Unpaid calls 1,00,000
Estimated value of assets not specifically pledged 60,60,000
Assets specifically pledged (List B)
Particulars Est. Real. Due to secured Deficiency ranking Surplus carried to
Value creditors as unsecured last column
Investments 34,00,000 38,00,000 4,00,000 -
Land & Building 26,00,000 16,00,000 - 10,00,000
60,00,000 54,00,000 4,00,000 10,00,000 10,00,000
Estimated total assets available for preferential creditors, debenture holders secured by a 70,60,000
floating charge and unsecured creditors
Summary of Gross Assets
Estimated Realizable value of assets specifically pledged 60,00,000
Estimated Realizable value of assets not specifically pledged 60,60,000
Total Assets 1,20,60,000
Liabilities
Gross Liabilities Liabilities
50,00,000 Secured creditors (as per List B) to the extent to which claims are -
estimated to be covered by assets specifically pledged
Preferential creditors (as per List C)
4,20,000 (4,00,000+20,000 maximum for 4 months) 4,20,000
Balance of assets available for debenture holders secured by 66,40,000
floating charge and unsecured creditors
20,50,000 Debenture holders secured by floating charge (as per List D) 20,50,000
Balance of assets available for unsecured creditors 45,90,000
Unsecured creditors (as per List E)
58,70,000 (4,00,000+53,10,000+40,000+1,20,000) 58,70,000
1,33,40,000 Estimated deficiency as regards creditors (difference between 12,80,000
gross assets and gross liabilities)
6% 2,00,000 Preference shares of ₹ 10 each (as per List F) 20,00,000
6,00,000 Equity shares of ₹ 10 each, 8 paid (as per List G) 48,00,000
Estimated deficiency as regards members (as per List H) 80,80,000
Note:
1) The above is subject to cost of winding up estimated as ₹ 3,00,000 and to any surplus / deficiency on
realisation of assets.
2) There are 6,00,000 shares unpaid @ ₹ 2 per share liable to be called up.

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Working Notes: Trial Balance to ascertain the amount of loss for the year ended 31st March, 2020
Dr. Cr.
Land & Building 24,00,000
Plant and Machinery 40,00,000
Tools and Equipments 4,00,000
Patents and Copyrights 10,00,000
Inventories 17,40,000
Investment 36,00,000
Trade Receivables 18,00,000
Equity Capital 48,00,000
6% Preference share capital 19,00,000
5% Debentures 20,00,000
Interest Outstanding 50,000
Mortgage on Land & Building 16,00,000
Trade Creditors 53,10,000
Owing for Wages 4,00,000
Secretary’s Salary 60,000
Managing Director’s Salary 1,20,000
Bank Overdraft 38,00,000
Profit & Loss Account (Bal. Fig.) 51,00,000
2,00,40,000 2,00,40,000

Reserve & Surplus Account*

Amount Amount
1.4.2015 To Profit & Loss A/c 5,00,000 1.4.2015 By Balance b/d 8,00,000
(Transfer)
31.3.2016 To Dividend- Equity 4,80,000 31.3.2016 By Profit for the year 8,00,000
Preference 1,14,000
1.4.16 to To Profit & Loss A/c 21,80,000 31.3.2020 By Balance c/d 51,00,000
31.3.19 (Loss)
To Loss of Stock 8,00,000
31.03.20 To Profit & Loss A/c 26,26,000
(Loss) (Bal. Fig.)
67,00,000 67,00,000
*Alternatively make Statement of P&L Acc.

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 List H - Deficiency Account
A. Item contributing to Deficiency
1. Excess of capital & liabilities over assets on 1-4-2015 Nil
2. Net dividend & bonuses during the period (4,80,000 + 1,14,000) 5,94,000
3. Net trading losses after charging depreciation, taxation, interest on debentures, 48,06,000
etc. during the same period (₹ 21,80,000 + ₹ 26,26,000)
4. Losses other than trading losses written off or for which provision has been made 8,00,000
in the books during the same period - stock loss
5. Estimated losses now written off or for which provision has been made for the
purpose of preparing the statement:
Plant and Machinery 14,00,000
Tools and equipments 3,20,000
Patents and copyrights 4,00,000
Inventories 2,60,000
Investments 2,00,000
Debtors 6,00,000 31,80,000
6. Other items contributing to deficiency Nil
93,80,000
B. Items reducing Deficiency
7. Excess of assets over capital & liabilities on 1st April, 2015 (8,00,000 – 5,00,000) 3,00,000
8. Net trading profit during the period 8,00,000
9. Profit & Incomes other than trading profit during the same period -
10. Other items - Profit expected on Land & Building (26,00,000 - 24,00,000) 2,00,000
13,00,000
Deficiency as shown by the Statement of Affairs (A) - (B) 80,80,000

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 Overriding Preferential Payments
Overriding Preferential Payments (Section 326)
(1) In the winding up of a company under this Act, the following debts shall be paid in priority to all
other debts:
(a) workmen’s dues; and
(b) where a secured creditor has realised a secured asset, so much of the debts due to such secured
creditor as could not be realised by him or the amount of the workmen’s portion in his security (if
payable under the law), whichever is less, pari passu with the workmen’s dues:
Explanation.—For the purposes of this section, and section 327—
(a) “workmen”, in relation to a company, means the employees of the company, being workmen within
the meaning of section 2(s) of the Industrial Disputes Act, 1947.
(b) “workmen’s dues”, in relation to a company, means the aggregate of the following sums due from the
company to its workmen

Question Inter Nov 2020 (5 Marks)

Beekey Limited is being wound up by the tribunal. All the assets of the company have been charged in
favour of the company's bankers to whom the company owes ₹ 2.50 crores.
The company owes following amounts to others:
Dues to workers - ₹ 62,50,000
Taxes payable to Government - ₹ 15,00,000
Unsecured creditors - ₹ 30,00,000
You are required to compute with reference to the provisions of the Companies Act, 2013, the amount
each kind of creditors is likely to get if the amount realized by the official liquidator from the secured
assets and available for distribution among creditors is only ₹ 2,00,00,000.

Solution
Section 326 of the Companies Act, 2013 talks about the overriding preferential payments to be made
from the amount realized from the assets to be distributed to various kind of creditors. According to the
proviso given in the section 326 the security of every secured creditor should be deemed to be subject to a
pari passu charge in favour of the workman to the extent of their portion.
Workman's Share to Secured Asset = Amount Realized X Workman ' s Dues
Workman ' s Dues +Secured Loan
Workman's Share to Secured Asset = 2,00,00,000 X 62,50,000
62,50,000 +2,50,00,000
= 2,00,00,000 X 1/5
Workmen’s share to Secured Assets = ₹ 40,00,000
Amount available to secured creditor is ₹ 200 Lakhs – 40 Lakhs = 160 Lakhs
Hence, no amount is available for payment of government dues and unsecured creditors.
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