The Creditor Challenge: What Happens to Outstanding Claims?

Creditors are central to the winding-up process.

A company's books may show ₹10 lakh payable to a vendor, but:

• the vendor claims ₹15 lakh;
• the creditor cannot be traced;
• invoices are unavailable;
• the company disputes the liability;
• the balance has remained outstanding for many years;
• the liability is contingent; or
• a creditor submits a claim during winding up.

Under Section 324, debts and claims of different descriptions, including certain present, future and contingent claims, may be admitted to proof in winding up.

Priority amongst certain claims is separately governed by Sections 326 and 327, including workmen's dues and specified preferential payments.

The winding-up committee contemplated under Section 277 also assists in matters including finalisation of the list of creditors and contributories and compromise, abandonment or settlement of claims.

Practical issue

An old creditor appearing in the balance sheet cannot simply be removed because:

“Nobody has followed up for years.”

The underlying liability needs to be examined, supported, disputed, admitted, settled or otherwise appropriately dealt with during winding up.

Main takeaway

Winding up is not about deleting liabilities from the books—it is about identifying and legally dealing with them.

This Article has been compiled by Diksha Narang (Associate).