Company in Liquidation AY 2026-27

By | May 7, 2026
0 Comment

Company in Liquidation

Introduction
When a company undergoes liquidation, a liquidator is appointed to oversee the sale of assets and settlement of liabilities. This provision ensures that the government’s tax dues are not evaded during the liquidation process.

Duties of the Liquidator

  1. Notification to Assessing Officer:

o The liquidator must inform the Assessing Officer within 30 days of their appointment.

  1. Assessment by the Tax Department:

o The Assessing officer can ask for any information he needs and must inform the liquidator, within 3 months of getting the notice of appointment, about the amount that should be set aside to cover the company’s present or likely future tax dues.

  1. Set-Aside of Tax Amount:

o The liquidator cannot distribute assets without setting aside the notified tax amount.

o Exceptions: Payments to secured creditors and winding-up costs approved by tax authorities.

Priority of Tax Dues in Liquidation

  • Under the Insolvency and Bankruptcy Code, 2016 (IBC), tax dues rank below secured creditors.
  • The priority of payments under Section 53 of IBC is:
  1. Insolvency resolution and liquidation costs
  2. Workmen’s dues (24 months) and secured creditors
  3. Employee wages (12 months)
  4. Unsecured creditors
  5. Government dues (preceding 2 years) and unpaid secured creditor amounts
  6. Other debts and dues
  7. Preference shareholders
  8. Equity shareholders

Consequences of Default by Liquidator
A liquidator is personally liable for tax dues if they:

  • Fail to notify the Assessing Officer within 30 days.
  • Fail to set aside the notified tax amount.
  • Distribute assets within three months without approval.
  • Penalty:

o Joint and several liability if multiple liquidators exist.

o Rigorous imprisonment of up to two years under Section 276A.

Liability of Directors

  • If a private company fails to pay tax, its directors are jointly and severally liable unless they prove that non-recovery was not due to their neglect or breach of duty.
  • This applies even if the company has not gone into liquidation.
  • Tax due includes penalty, interest, and fees.