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Winding up of an LLP

What is Winding Up of an LLP?

Winding up of a Limited Liability Partnership (LLP) refers to the formal process of closing down its operations, disposing of its assets, and settling its liabilities. This process is undertaken when an LLP ceases its business activities and dissolves as a legal entity.

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Winding up of an LLP

Legal Framework Governing LLP Winding Up

The winding up of LLPs in India is governed by:
  • Section 65 of the LLP Act, 2008:
  • Section 67 of the LLP Act, 2008:
  • Notification GSR 6(E), dated 6th January 2010:
  • Limited Liability Partnership (Winding up and Dissolution) Rules, 2012:
  • Empowers the Central Government to formulate rules for LLP winding up.
  • Grants the Central Government authority to apply provisions of the Companies Act, 1956, with or without modifications, to LLPs.
  • Directs the applicability of certain sections of the Companies Act, 1956, to LLP winding up.
  • Outlines procedures, forms, and fees for LLP winding up and dissolution.

Comparison: Winding Up vs. Dissolution

Basis

  • Meaning
  • Legal Entity

Winding Up

  • Process of closing operations, selling assets, and settling liabilities.
  • LLP remains a legal entity during winding up.

Dissolution

  • Final step where the LLP ceases to exist legally.
  • LLP no longer exists as a legal entity post-dissolution.

Modes of LLP Winding Up

According to the Companies Act 2017, winding up can be carried out in three primary ways:

1. Voluntary Winding Up

  • Process:
  • Procedure:
  • Initiated by partners' mutual decision or as specified in the LLP agreement.
  • Includes declaring solvency, passing a resolution, and appointing a liquidator.

2. Insolvency and Bankruptcy Code (IBC), 2016

  • Role:
  • Process:
  • Primarily deals with insolvency and restructuring; NCLT can order LLP liquidation.
  • Involves filing an application, appointment of an Insolvency Resolution Professional (IRP), and either restructuring or liquidation.

3. Compulsory Winding Up by the Tribunal

  • Initiation:
  • Procedure:
  • Ordered by the Tribunal for reasons such as non-compliance, insolvency, or activities against national interest.
  • Includes filing a petition, Tribunal’s decision, appointment of a liquidator, and eventually dissolution.

1. Voluntary Liquidation (Winding up)

Pre-requisites:

  • Solvency:
  • Declaration:
  • Good Faith:
  • LLP must be able to pay its debts.
  • Majority of designated partners must declare solvency.
  • Liquidation should not aim to defraud.

Procedure:

  • 1. Declaration of Solvency:
  • 2. Resolution:
  • 3. Creditors' Approval:
  • 4. Notification:
  • 5. Liquidation:
  • Accompanied by financial statements and asset valuation.
  • Pass resolution for liquidation and appoint a liquidator.
  • Obtain approval from creditors holding two-thirds of the debt value.
  • Inform the Registrar and IBBI.
  • Process starts from the resolution date, with public announcement and claim verification.

Liquidation Process:

  • Appointment and Remuneration:
  • Reporting:
  • Realisation and Distribution:
  • Appoint an insolvency professional as a liquidator.
  • Liquidator submits various reports.
  • Liquidator sells assets, deposits proceeds, and distributes them among stakeholders.

2. Insolvency Proceedings under IBC, 2016

  • 1. Initiation:
  • 2. Moratorium:
  • 3. IRP Appointment:
  • 4. Committee of Creditors (CoC):
  • 5. Resolution Plan:
  • 6. Liquidation:
  • 7. Dissolution:
  • Application to NCLT by LLP, creditors, or partners.
  • Legal actions against LLP are halted.
  • Manages LLP operations and drafts a resolution plan.
  • Reviews and approves resolution or liquidation plan.
  • Strategy for debt resolution or asset liquidation.
  • If resolution is not feasible, LLP assets are liquidated.
  • Marks the end of the LLP’s existence.

3. Winding Up by Tribunal

Reasons for Tribunal Initiation:

  • Voluntary decision by LLP.
  • Insufficient number of partners.
  • Insolvency.
  • Activities against national interest.
  • Non-compliance with statutory requirements.
  • Just and equitable grounds.

Procedure:

  • 1. Petition:
  • 2. Tribunal Decision:
  • 3. Appointment of Liquidator:
  • 4. Public Announcement:
  • 5. Settlement of Claims:
  • 6. Liquidation of Assets:
  • 7. Distribution of Assets:
  • 8. Dissolution:
  • Filed by LLP, creditors, partners, or authorized persons.
  • If grounds are found, a winding-up order is passed.
  • Managed by the Tribunal.
  • Liquidator announces winding up and invites claims.
  • Claims are verified and settled.
  • Sale of assets to pay off debts.
  • Remaining assets are distributed to partners.
  • Tribunal issues a dissolution order, filed with the Registrar.

Munibgiri: Your Partner in LLP Winding Up

Munibgiri offers specialized services to facilitate the winding up of LLPs, ensuring compliance and efficiency throughout the process. Our experts assist with documentation, declarations, resolutions, and liquidator appointments. For a seamless winding-up experience, contact us for personalized assistance.