Dec 13, 2017
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Preferential Payment on winding up of the company

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Preferential Payment on winding up of the company

What is Preferential Payment?

Preferential payment is a payment or asset transfer to the creditor before  liquidation process. Such creditors have advantage over other small creditors. A liquidator can recover funds directly from the creditors. If liquidator is unable to recover, court order need to be obtained . Only the liquidator can recover preferential payments. Provisional liquidator, administrator, receiver or manager has no power to recover payments.

Following provisions are for preferential payments:

Under section 236 of companies Act 2013

  1. All revenues, taxes, cesses and rates due to central government or state government or local bodies and becoming due and payable within the twelve months immediately before that date;
  2. All wages or salary or commission of employees in respect of service rendered by them to the company and due for a period not exceeding four months within the twelve months immediately before the relevant date. But are subject to specified limit.
  3. All paid leave remuneration payable to any employee. In the case of his death, to any person claiming under him. On the termination of his employment also before or while winding up of company
  4. If the company is going for voluntarily liquidation merely for the purposes of reconstruction or amalgamation with another company then all amount due in respect of contributions payable by the company as the employer during the period of twelve months immediately preceding the dateunder the Employees’ State Insurance Act, 1948 or any other law for the time being in force;
  5.  If the company is under a contract with any insurer(mentioned in section 14 of the Workmen’s Compensation Act, 1923). Then all amount due in respect of any compensation under the said Act. This is in respect of the death or disablement of any employee of the company

Any compensation under the Workmen’s Compensation Act, 1923 is a weekly payment. The amount payable shall be  the lump sum  payment. If redeemable, the employer have to make application under that Act

  1. All sums due in respect of the provident fund, the pension fund, the gratuity fund or any other fund for the welfare, to any employee by the company; and
  2. The company has to pay any expenses for purpose of investigation held in order with sections 213 and 216.
  3. Any payment of salary or wages or paid leave remuneration to any employee of a company out of money advanced by some person for that purpose. The person who advanced the money at the time of winding up of the company has a right of priority.

The debts mentioned in this section shall—

  1.  Paid equally or in equal proportion. Unless the assets are insufficient to meet them. In this case, they shall reduce their debt proportionately
  2. If the assets of the company are insufficient to meet with the payment to general creditors then they have priority over the claims of debenture holder.
  3. Company retain the costs and expenses of the winding up. After that debts are discharged . Debts given under clause (d) of section 1 shall not be require formal proof
  4.  Any person who has  distrained Company’s goods within three months immediately before the date of a winding up order. Then such has priority over the debts.

 Any money paid to person other than the landlord or other person shall have the same rights of priority

  1. Remuneration paid on medical grounds or other good cause is deemed to be wages for service rendered.


Article Categories:
The Companies Act, 2013

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