FAQs On Voluntary Winding Up

Tripti Sharma

Q 1. Which notification makes the voluntary winding up effective? The following notifications make the voluntary winding up effective:

Ans: The Ministry of Corporate Affairs vide notification dated 30th March 2017 notified Section 59 of the Insolvency and Bankruptcy Code, 2016 which is relating to Voluntary Liquidation of Corporate persons.

The Insolvency and Bankruptcy Board of India (IBBI) vide its notification dated 31st March 2017, notified the Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017 which came into effect from 1st April 2017.

Q 2. Which sections of Insolvency and Bankruptcy Code, 2016 deals with voluntary winding up?

Ans: The following sections of Insolvency and Bankruptcy Code, 2016 deals with voluntary winding up:

1. Section 59 – Voluntary liquidation of corporate persons.

2. Section 209 – 215 (both inclusive) – Information utilities.

3. Sub-section (1) of section 216 – Rights and obligations of persons submitting financial information.

4. Section 234 – Agreements with foreign countries; and

5. Section 235 – Letter of request to a country outside India in certain cases.

Q 3. Who can initiate the Voluntary winding up?

Ans: A corporate person who intends to liquidate itself voluntarily and has not committed any default can initiate the voluntary winding up.

Q 4. What are the conditions for voluntary winding up?

Ans: The entity should comply with the following conditions for voluntary winding up:

i. Declaration from majority of the directors of the company verified by an affidavit stating that-

• • 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 of the proceeds of assets to be sold in the voluntary liquidation; and
  • the company is not being liquidated to defraud any person.

ii. The above said declaration shall be accompanied with the following documents, namely: —

• • 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.
  • a report of the valuation of the assets of the company, if any prepared by a registered

Q 5. What are the steps involved in the process of voluntary winding up?

Ans: The following steps are involved in the process of voluntary winding up:

Step 1: Company is required to pass a special resolution in a general meeting within four weeks of a declaration, mentioning:

• the company is liquidating voluntarily and appointing an insolvency professional to act as the liquidator; or
• Liquidation of company 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.

If Company owes any debt, then the approval of creditors is required. Creditors pass the resolution within 7 days of passing in GM.

Step 2: Company will notify the ROC within 7 days of passing resolution or creditors approval, as the case may be.

Step 3: Public Announcement by Liquidator

1. The liquidator shall make a public announcement (PA) in Form A of Schedule I within five days from his appointment.

2. In PA, following should be mentioned:

• • Call upon stakeholders to submit their claims
  • Provide last date of submission of claim, which shall be 30 days from date of

3. PA should be published in English and vernacular language newspaper where RO is situated

4. PA should also show on website of Corporate debtor, if any.

Step 4: The liquidator shall receive or collect the claims of creditors within a period of thirty days from the date of the commencement of the liquidation process from:

• Financial creditor
• Operational creditor
• Creditor who is partly a financial creditor and partly an operational creditor
• Employees and workmen
• Any other person not included above

A creditor may withdraw or vary his claim under this section within fourteen days of its submission.

Step 5: The liquidator shall verify the claims within 30 days from the last date for receipt of claims.

The liquidator may require any creditor or the corporate debtor or any other person to produce any other document or evidence which he thinks necessary for the purpose of verifying the whole or any part of the claim.

Step 6: Liquidator after verification of claims may either admit or reject the claim, in whole or in part.

Provided that where the liquidator rejects a claim, he shall record in writing the reasons for such rejection.

A creditor may appeal to the Adjudicating Authority against the decision of the liquidator rejecting the claims within fourteen days of the receipt of such decision.

Step 7: Liquidator shall make list of stakeholders on basis of claims accepted within 45 days of last date of receipt of claims.

Step 8: Then, the liquidator shall determine the value of claims admitted

Step 9: Where the affairs of the corporate person have been completely wound up, and its assets completely liquidated; the liquidator shall make an application to the Adjudicating Authority for the dissolution of such corporate person.

Step 10: The Adjudicating Authority 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.

Step 11: A copy of an abovesaid order shall within fourteen days from the date of such order, be forwarded to the authority with which the corporate person is registered.

Q 6. Which form is required to file to submit the dissolution order?

Ans: The company is required to file the order in Form INC-28 with the ROC.

Q 7. What is the commencement date of liquidation process?

Ans: Commencement date of liquidation process will be date of resolution, subject to approval of creditors.

Q 8. What are the powers of liquidator in voluntary liquidation process?

Ans: The liquidator has the following powers:

• To verify claims of all the creditors.
• To take into his custody or control all the assets, property
• To evaluate the assets and property of the corporate debtor
• To take such measures to protect and preserve the assets and properties of the corporate debtor
• To carry on the business of the corporate debtor for its beneficial liquidation
• To sell the immovable and movable property and actionable claims of the corporate debtor in liquidation by public auction or private contract
• To draw, accept, make and endorse any negotiable instruments including bill
• of exchange, hundi, or promissory note in the name and on behalf of the corporate debtor
• Other powers as mentioned in code

Q 9. What is liquidation estate? Please mention the assets which includes and excludes from the estate?

Ans: The liquidator shall form an estate of the assets which will be called the liquidation estate in relation to the corporate debtor.

The liquidation estate shall comprise all liquidation estate assets which shall include the following: —

• any assets over which the corporate debtor has ownership rights, including all rights and interests therein as evidenced in the balance sheet of the corporate debtor
• assets that may or may not be in possession of the corporate debtor including but not limited to encumbered assets.
• tangible assets, whether movable or immovable.
• intangible assets including but not limited to intellectual property, securities (including shares held in a subsidiary of the corporate debtor) and financial instruments, insurance policies, contractual rights.
• any asset of the corporate debtor in respect of which a secured creditor has relinquished security interest.
• any other property belonging to or vested in the corporate debtor at the insolvency commencement date; and
• all proceeds of liquidation as and when they are realised.

The following assets shall not be included in the liquidation estate assets and shall not be used for recovery in the liquidation: —

• assets owned by a third party which are in possession of the corporate debtor, including—

> assets held in trust for any third party.

> bailment contracts.

> all sums due to any workman or employee from the provident fund, the pension fund and the gratuity fund.

> other contractual arrangements which do not stipulate transfer of title but only use of the assets

• assets of any Indian or foreign subsidiary of the corporate debtor

Q 10. What are the rights of secured creditor in liquidation proceedings?

Ans: A secured creditor in the liquidation proceedings may—

• relinquish its security interest to the liquidation estate and receive proceeds from the sale of assets by the liquidator
• realise its security interest

Q 11. What are the preferences of distribution of assets?

Ans: The proceeds from the assets shall be distributed in the below preferences:

1. Insolvency resolution process costs and the liquidation costs paid in full

2. Workmen’s dues for the period of twenty-four months preceding the liquidation commencement date; and debts owed to a secured creditor in the event such secured creditor has relinquished security

3. wages and any unpaid dues owed to employees other than workmen for the Period of twelve months

4. Financial debt owed to unsecured creditor

5. any amount due to the Central Government and the State Government

6. any remaining debts and dues.

7. Preference shareholders, if any

8. Equity shareholders or partners

Q 12. Name the categories from whom liquidator shall collect the claims and their proofs?

Ans: Liquidator shall collect the claims and their proofs in respective forms as mentioned in schedules:

• Financial creditor- Form C
• Operational creditor- Form B
• Employees and workmen- Form D
• Any other person not included above- Form F

Q 13. What is the time period for completion of liquidation process?

Ans: The liquidator shall complete the liquidation process within 12 months from within commencement date.

If the liquidation proceedings does not complete in 12 months, the liquidator shall hold a meeting of the contributories of the corporate person within fifteen days from the end of the twelve months from the liquidation commencement date, and at the end every succeeding twelve months till dissolution of the corporate person.

Q 14. What are the eligibilities for appointment as liquidator?

Ans: The eligibilities for appointment as liquidator are as follows:

1. An insolvency professional and every partner or director of the insolvency professional entity of which he is a partner or director is independent of the corporate person.

2. An insolvency professional and every partner or director of the insolvency professional entity of which he is a partner or director is not under a restraint order of the Board.

3. A liquidator shall disclose the existence of any pecuniary or personal relationship with the concerned corporate person or any of its stakeholders as soon as he becomes aware of it, to the Board and the Registrar.

4. An insolvency professional shall not continue as a liquidator if the insolvency professional entity of which he is a director or partner, or any other partner or director of such insolvency professional entity represents any other stakeholder in the same liquidation.

Q 15. When an insolvency professional shall be considered as an independent to the corporate person?

Ans: An insolvency professional shall satisfy the following conditions for qualifying as an independent to the corporate person:

1. An insolvency professional shall be eligible to be appointed as independent director under section 149 of Companies Act, 2013.

2. An insolvency professional shall not be a related party to a corporate person.

3. An insolvency professional has not been an employee or proprietor or a partner-

• of a firm of auditors or secretarial auditors or cost auditors of the corporate person; or
• of a legal or a consulting firm, that has or had any transaction with the corporate person contributing ten per cent or more of the gross turnover of such firm at any time in the last three years.

*(Author ‘Tripti Sharma’ is associated with ‘International Business Advisors, Delhi’)