VOLUNTARY LIQUIDATION (UNDER THE INSOLVENCY AND BANKRUPTCY CODE, 2016)
The Central Government vide its notification introduced in 2017 notified Section 59 of Insolvency and Bankruptcy Code. Prior to the commencement of Insolvency and Bankruptcy Code, 2016, the Voluntary Liquidation was governed under the Companies Act, 1956. After enactment of Companies Act, 2013, the provisions for winding up were not notified for a long time and then the same was substituted by Insolvency and Bankruptcy Code, 2016 on 15th November, 2016. The Insolvency and Bankruptcy Code define the Voluntary Liquidation in a very simpler way. Section 59 gives an opportunity to the Companies to who have not committed any default to shut down the business operations in a legal way. Here presenting a brief procedure for conducting voluntary liquidation for the companies.
Regulatory Framework:
I. Chapter V – Section 59, Voluntary Liquidation of Corporate Persons of the Insolvency and Bankruptcy Code, 2016
II. Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017
– A Company can voluntarily liquidate itself if it has not committed any default may initiate voluntary liquidation proceedings under the provisions of Insolvency and Bankruptcy Code, 2016.
– Voluntary liquidation proceedings of a company shall meet the following conditions, namely: –
(a) a 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;
(b) the declaration under sub-clause (a) 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;
(c) within four weeks of a 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: Provided that the company owes any debt to any person, creditors representing two thirds in value of the debt of the company shall approve the resolution passed above within seven days of such resolution.
– The Company shall intimate the Registrar of Companies and the Board about the resolution to liquidate the Company within seven days of such resolution or the subsequent approval by the creditors, as the case may be.
– Subject to approval of the creditors, the voluntary liquidation proceedings in respect of a company shall be deemed to have commenced from the date of passing of the resolution passed above.
– The Company shall appoint an insolvency professional as liquidator.
– The liquidator shall make a public announcement in Form A of Schedule I within five days from his appointment.
– The public announcement shall-
(a) call upon stakeholders to submit their claims as on the liquidation commencement date; and
(b) provide the last date for submission of claim, which shall be thirty days from the liquidation commencement date.
The announcement shall be published-
(a) in one English and one regional language newspaper with wide circulation at the location of the registered office and principal office, if any, of the corporate person and any other location where in the opinion of the liquidator, the corporate person conducts material business operations;
(b) on the website, if any, of the corporate person; and
(c) on the website, if any, designated by the Board for this purpose.
Reporting: The liquidator shall prepare and submit-
(a) Preliminary Report: Within 45 days from the liquidation commencement date.
(b) Annual Status Report;
(c) Minutes of consultations with stakeholders; and
(d) Final Report
– When the affairs of the corporate person have been completely wound up, and its assets completely liquidated, the liquidator shall make an application to the National Company Law Tribunal (NCLT) for the dissolution of such corporate person.
– The NCLT shall on an application filed by the liquidator, pass an order that the corporate debtor shall be dissolved from the date of that order and the corporate debtor shall be dissolved accordingly.
– A copy of an order shall within 14 days from the date of such order, be forwarded to the authority with which the corporate person is registered.
– The liquidator shall preserve the reports, registers and books of accounts for at least 8 years after the dissolution of the company.
Liquidator will manage all the properties of the Company once ordered by the NCLT.
Insolvency and Bankruptcy Code anticipates only one type of voluntary liquidation with both members and creditors discretion.
Disclaimer: The entire contents of this document have been developed on the basis of relevant statutory provisions. Though the author has made utmost efforts to provide authentic information however, the author and the firm expressly disclaim all and any liability to any person who has read this document, or otherwise, in respect of anything, and of consequences of anything done, or omitted to be done by any such person in reliance upon the contents of this document.
Author Bio
