Voluntary liquidation under the Insolvency and Bankruptcy Code (IBC) of India allows solvent companies to dissolve themselves voluntarily. This process is initiated by a company when its shareholders decide that it is no longer necessary to continue its business operations. This Blog provides an Overview of the processes which are associated to voluntary liquidation of a company
Voluntary Liquidation Under IBC
Voluntary liquidation by corporate persons:
A corporate person who intends to liquidate itself voluntarily and has not committed any default may initiate voluntary liquidation proceedings under Chapter V Part II of Insolvency and Bankruptcy Code, 2016 (IBC or the Code) – section 59(1).
A ‘Corporate Person’ as defined in Section 3 of Part I of the said Code means:
It does not include any Financial Service Provider. However, Financial Service Provider could be notified for the purpose of their insolvency and liquidation proceedings, under section 227 of the Code.
Two pre-conditions for initiating voluntary liquidation under section 59 are –
(i) the corporate person intends to liquidate itself voluntarily; and
(ii) the corporate person has not committed any default.
Process for Voluntary Liquidation:
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Declaration from majority of the directors of the company verified by an affidavit: The company should first take declaration from majority of the directors of the company verified by an affidavit stating that— (i) they have made a full inquiry into the affairs of the company and they have formed an opinion that either the company has no debt or that it will be able to pay its debts in full from the proceeds of assets to be sold in the voluntary liquidation; and (ii) the company is not being liquidated to defraud any person. The declaration shall be accompanied with the following documents, namely: (i) audited financial statements and record of business operations of the company for the previous two years or for the period since its incorporation, whichever is later; (ii) a report of the valuation of the assets of the company, if any prepared by a registered valuer Convene Board meeting to discuss and approve:
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Passing of Special Resolution:
Within 4 weeks of the declaration, there shall be—
(i) a special resolution of the members of the company in a general meeting requiring the company to be liquidated voluntarily and appointing an insolvency professional to act as the liquidator; or
(ii) a resolution of the members of the company in a general meeting requiring the company to be liquidated voluntarily as a result of expiry of the period of its duration, if any, fixed by its articles or on the occurrence of any event in respect of which the articles provide that the company shall be dissolved, as the case may be and appointing an insolvency professional to act as the liquidator.
Approval of creditors if company owes debt:
(In case of Creditors owning 2/3rd of the Value of Debt, approval of Creditors is required)
Intimation to the ROC and the IBBI:
The corporate person shall notify the Registrar and the IBBI about the resolution to liquidate the corporate person within 7 days of such resolution or the subsequent approval by the creditors, as the case may be.
Commencement of voluntary liquidation proceedings:
The voluntary liquidation proceedings in respect of a company shall be deemed to have commenced from the date of passing of the resolution by members, subject to approval of creditors.
Public announcement and Intimation to the IBBI:
The liquidator shall make a public announcement in Form A within 5 days from his appointment calling upon stakeholders to submit their claims within 30 days from the liquidation commencement date.
Liquidator to intimate Insolvency and Bankruptcy Board of India (IBBI) regarding public announcement.
Submission of proof of claim:
Submission of Proof of Claim by Operational Creditors/Financial Creditors/Workmen and Employees/any other Stakeholders/Secured Creditor.
Verification of claim
The liquidator shall verify the claims submitted within 30 days from the last date for receipt of claims and may either admit or reject the claim, in whole or in part, as the case may be, as per section 405 of the Code.
List of stakeholders
The liquidator shall prepare a list of stakeholders on the basis of proofs of claims submitted and accepted under these Regulations with details as specified in Regulation 30 of IBBI (Voluntary Liquidation Process) Regulations, 2017.
Realisation of Assets
The liquidator shall realize value of assets, recover monies due and realize uncalled capital or unpaid capital contribution as provided in Regulations 31 to 33 of IBBI (Voluntary Liquidation Process) Regulations, 2017.
All money will be kept in Bank account in a scheduled bank, as provided in Regulation 34 of IBBI (Voluntary Liquidation Process) Regulations, 2017.
Distribution of proceeds and return of money
The liquidator shall distribute the proceeds from realization within 30 days from the receipt of the amount to the stakeholders. The liquidation costs shall be deducted before such distribution is made. The liquidator may, with the approval of the corporate person, distribute amongst the stakeholders, an asset that cannot be readily or advantageously sold due to its peculiar nature or other special circumstances – Regulation 35 of IBBI (Voluntary Liquidation Process) Regulations, 2017.
Final Report
The liquidator shall Prepare Final Report as per Regulation 38 of Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017 and submit it to ROC, IBBI & NCLT.
Corporate Voluntary Liquidation Account
In case of unclaimed proceeds or undistributed assets, the liquidator shall apply to the NCLT for an order to pay into the Companies Liquidation Account in the Public Account of India.
Application for dissolution
Where the affairs of the Company are completely wound up and its assets completely liquidated, the liquidator shall make an application to Adjudicating Authority for the dissolution of such Company.
Preservation of records
The liquidator shall preserve all the reports, records, registers and books of accounts either in physical or electronic form for a period of 8 years after the dissolution of the Company either with himself or with an Information Utility.
Disclaimer
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