Addressing Insolvency: Liquidation Procedure for Societies under Section 35 of the Societies Act

Section 35 of the Societies Act outlines the procedure to be followed when a society is insolvent, meaning its assets are insufficient to cover its debts, liabilities, and the costs of liquidation.

This article explores the key provisions of Section 35, focusing on the responsibilities of the liquidator, the allocation of remaining assets, and the application of the Insolvency Act, 2015, in such scenarios.

Section 35: Procedure if Society is Insolvent

Allocation of Remaining Assets: In cases where the assets of a society are insufficient to fully satisfy its debts, liabilities, and liquidation costs, the liquidator, as per Section 35(1), takes the following steps:

Setting Aside for Liquidation Costs: The liquidator first sets aside an amount sufficient to cover the costs associated with the liquidation process. This ensures that the necessary expenses are prioritized and addressed.

Proportional Division Among Creditors: After allocating funds for liquidation costs, the liquidator divides the remaining balance among the creditors who have proven their debts. The distribution is carried out in proportion to the size of each creditor’s claims.

Application of the Insolvency Act, 2015: Section 35(2) specifies that, except as provided by the Societies Act, the provisions of the Insolvency Act, 2015, relating to the liquidation of a company, are applicable to the liquidation of a society. This means that the legal framework established for the insolvency of companies, as outlined in the Insolvency Act, 2015, is adopted for the liquidation of insolvent societies.

Key Aspects of the Insolvency Liquidation Procedure:

Prudent Allocation for Liquidation Costs: The liquidator exercises prudence by setting aside an amount specifically designated to cover the costs associated with the liquidation process. This ensures that the necessary steps for winding up the society can be undertaken efficiently.

Proportional Debt Settlement: Creditors who have proven their debts are treated equitably in the liquidation process. The remaining assets are distributed proportionally based on the size of each creditor’s claims, adhering to principles of fairness and transparency.

Alignment with the Insolvency Act, 2015: The incorporation of the provisions of the Insolvency Act, 2015, into the liquidation process of societies ensures consistency and clarity in addressing insolvency issues. The legal framework established for company insolvency is applied in the context of societies.

Legal Framework Adoption: The Societies Act explicitly states that, except where otherwise specified, the Insolvency Act, 2015, guides the liquidation process. This adoption ensures that established legal principles are applied to insolvency proceedings for societies.

Conclusion:

Section 35 of the Societies Act provides a structured and legally sound approach for addressing insolvency within registered societies. By prioritizing liquidation costs and adopting the provisions of the Insolvency Act, 2015, the section ensures an equitable and systematic distribution of remaining assets among creditors.

This legal framework reinforces transparency and fairness in the resolution of insolvency-related matters, safeguarding the interests of creditors and stakeholders involved in the liquidation process of an insolvent society.