With effect from 1st April 2017, the Insolvency and Bankruptcy Board of India has notified the Corporate Voluntary Liquidation Process Regulations, 2016. These regulations have removed the recently faced ambiguity in winding up and liquidation of corporate persons after the recent amendments in Companies Act, 2013 subsequent to section 255 of Insolvency and Bankruptcy Code being notified.
The regulations read with section 59 of the IBC provide a detailed procedure for voluntary liquidation of corporate persons i.e. companies, limited liability partnership and any other corporate person incorporated with limited liability.
A brief overview of the regulations is as follows:
1. Declaration of solvency (that it has no debts or the entity will be able to pay its debts in full) given by majority of its directors or designated partners.
2. Approval of voluntary liquidation by special majority of the partners of LLP / contributories of other Corporate Persons and by special majority of the shareholders of a company to be obtained within 4 weeks of date of declaration mentioned in point 1. The said resolution should contain the details of the liquidator to be appointed and terms and conditions of his/her appointment, including his/her remuneration. The Regulations provide eligibility criteria for an insolvency professional to be appointed as a liquidator.
3. If the Corporate Person owes any money to the creditors, approval of 2/3rd(Of debt amount) of the creditors has to be obtained.
4. Within 7 days of approval of the creditors as mentioned in point 3, the ROC and the Board has to be notified about the resolutions passed by the shareholders/partner/contributories and the creditors.
5. The voluntary liquidation proceedings shall be deemed to have been commenced from the date of resolution of partners / shareholders / contributories as mentioned in point 2 above.
6. The role of the liquidator includes public announcement of his appointment and calling upon the stakeholders to submit their claims within 5 days of his / her appointment, preparation of preliminary report within 45 days from the liquidation commencement date regarding the entity’s financial position etc.
7. The Regulations prescribe the form and manner in which the claims have to be submitted by operational creditors, financial creditors, workmen and employees and other stakeholders. Provisions have been made for persons to submit proof of claims for even future claims.
8. The liquidator is required to verify the claims within 30 days from the last date for receipt of proof of claims and shall prepare list of stakeholders within 45 days of last date of receipt of claims.
9. After preparation of the list of stakeholders, the liquidator has to realise the assets, recover the money due to the corporate person and realise uncalled capital / contribution, if any.
10. The amounts realised should be remitted to a separate bank account not later than next working day of the date of realisation of the monies and shall be distributed to the stakeholders within 6 months from the date of receipt of amount.
11. The Regulations require the liquidator an endeavour to complete the liquidation process within 12 months from the liquidation commencement date. Otherwise, he has to hold a meeting of the contributories at the end of each year and present annual status report to them.
12. On completion of liquidation process, liquidator has to submit a final report to the ROC and the Board and has to make an application to the NCLT for dissolution of the Corporate Entity.
13. The Corporate Person shall continue to exist till it is dissolved by the order of NCLT.
These regulations has unified and simplified the process of liquidation of corporate persons in comparison to earlier contained provisions in Companies Act. After the scrapping of the concept of ‘voluntary winding up’ from the Companies Act there was a lot of confusion and ambiguity as to which provisions should be followed in case of liquidation/winding up. These regulations have cleared the air of confusion and have also laid down the course of action to be taken by the financial and operational creditor for their respective claims in case of liquidation. The purpose of these regulations is to modernize and streamline the process of liquidation of corporate persons. It is a relief for many that the rules surrounding liquidation procedures have now been collated in one source.