Voluntary Liquidation under IBC, 2016 – Analysis

ii. To consider and approve Declaration of Solvency and affidavit by the directors of the Company.

iii. Board of Directors Will Propose the Name of Insolvency Professional as liquidator of the Company.

An insolvency professional shall be eligible to be appointed as a liquidator if he is independent of the corporate person: A person shall be considered independent of the Corporate Person, if he-

Is eligible to appointed as an independent director on the board of the Corporate Person under section 149 of the Act of 2013, where the Corporate Person is a Company;

Is not a related party within the meaning of Section 188 of the Act of 2013;

Has not been an employee or proprietor or a partner- (i) of a firm of auditors or company secretaries or cost accountants or cost auditors of the Corporate Person;

(ii) of a legal or consulting firm, that has or has had any transactions with the Corporate Person contributing ten per cent or more of the gross turnover of the firm.

Additionally, remuneration payable to the Liquidator shall form a part of the Liquidation process.

iv. To fix day, date, time and to send notice for General Meeting.

Attachments: –

Audited Financial Statements of Previous 2 Financial year

Provisional Balance Sheet as on liquidation commencement date

Declaration of Solvency and Valuation Report

Statement showing Realisation of Assets and liabilities

Obtaining Consent of members to voluntarily liquidate the Company and

Appointment of Liquidator

Provided that where the corporate Person is a company, creditors representing two third in value of the debt owed to the company have to support the resolution within seven days of such resolution.

From this date the liquidator steps into the shoes of the Directors. And will perform all the functions to carry on the business of corporate person.

Liquidator shall inter alia have the following power and duties:

(a) to verify claims of all the creditors;

(b) to take into his custody all assets, property, effects and actionable claims of the corporate person;

(c) to evaluate the assets and property of the corporate person in the manner as may be specified by the Board and prepare a report;

(d) to take such measures to protect and preserve the assets and properties of the corporate debtor as he considers necessary;

(e) to carry on the business of the corporate debtor for its beneficial liquidation as he considers necessary;

(f) to sell the immovable and movable property and actionable claims of the corporate person in liquidation by public auction or private contract, with power to transfer such property to any person or body corporate, or to sell the same in parcels in such manner as may be specified;

(g) to invite and settle claims of creditors and claimants and distribute proceeds in accordance with the provisions of this Code;

(h) to obtain any professional assistance from any person or appoint any professional, in discharge of his duties, obligations and responsibilities;

The liquidator shall not engage a professional who is his relative, is a related party of the corporate person or has served as an auditor to the corporate person at any time during the five years preceding the liquidation commencement date.

(i) to perform such other functions as may be specified by the Board

Attachments for this e form

True Copy of the Resolution

The company also has to notify the Registrar of Companies in form GNL-2 Appointment of Liquidator.

Attachments for this e form

Earlier, the liquidator has to obtain a No-Objection Letter from the Tax authorities of the place where the registered office of the company is situated. The Insolvency and Bankruptcy Board of India (IBBI) vide its Circular- IBBI/LIQ/45/2021 dated 15.11.2021 has clarified that as per the provisions of the Code and the Regulations read with Section 178 of the Income-tax Act, 1961, an Insolvency Professional handling voluntary liquidation process is not required to seek any NOC/NDC from the Income Tax Department as part of compliance in the said process

the capital structure of the corporate person;

the estimates of its assets and liabilities as on the liquidation commencement date based on the books of the corporate person:

whether he intends to make any further inquiry in to any matter relating to the promotion, formation or failure of the corporate person or the conduct of the business thereof; and

the proposed plan of action for carrying out the liquidation, including the timeline within which he proposes to carry it out and the estimated liquidation costs.

Practical Aspect to be covered here under is the Payment of Capital Gain tax (if any). It is the responsibility of Liquidator to make sure that there is no pending tax liability on account of any capital gain.

The liquidation costs (including liquidator fees) will be deducted before such distribution is made.

Practical Aspect to be covered hereunder is the Payment of DDT. As per Section 2(22)(c) in The Income- Tax Act, 1995 any distribution made to the shareholders of a company on its liquidation, to the extent to which the distribution is attributable to the accumulated profits of the company immediately before its liquidation, whether capitalized or not shall be Deemed Dividend. And on such Deemed Dividend Tds @ 10% is payable (Section 194)

For Example Share Capital of the XYZ Company in voluntary Liquidation is 50,00,000 i.e. 50000 shares @ Rs. 100. Suppose Amount Realised from the Assets of the Company is Rs. 80,00,000. After Payment of liabilities Amount available for distribution to shareholders Rs 75,00,000. Now Rs. 50,00,000 is repayment of capital only the Amount above 50,00,000 i.e. 2500000 will be deemed dividend as per Section 2(22)c of income tax Act and on such amount tds of Rs. 2,50,000 i.e. 10% of the Amount shall be payable. Now the this is the responsibility of liquidator only. So. We need to be extra careful about this tax Aspects.

audited accounts of the Company after repayment of liabilities showing no Assets and liabilities

a statement showing the assets are disposed, debts are discharged and no litigation is pending

a sale statement of assets showing realized value, its cost, manner and mode of sale, any shortfall, to whom it is sold etc

Liquidator shall deposit unclaimed amount in Corporate Liquidation Account

Along with the Final Report, the liquidator shall submit the Compliance Certificate in FORM-H to the adjudicating Authority along with application under section 59(7).