CS Divesh Goyal
SHORT SUMMARY:
VIA Notification No. IBBI/2016-17/GN/REG010 dated 31st March, 2017 IBBI has notified the Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017. The same has been published in the official gazette. As a result of the same w.e.f. 1st April, 2017 voluntary winding up shall be conduct under Insolvency and Bankruptcy Code, 2016 (hereafter referred as “IBC”).
In this Flash editorial, the auditor begins by referring notifications for applicability of provisions of Voluntary Liquidation/ winding up under Insolvency and Bankruptcy Code, 2016. The main thrust of the article, however, is upon the provisions / regulations, of IBC concerning liquidation of a corporate person – companies, limited liability partnerships and any other persons incorporated with limited liability and process of liquidation under these regulations.
Members’ Voluntary Liquidation is the option for solvent companies when it comes to liquidation. If you are a director of a company that you feel no longer has a purpose and the company has enough funds to pay back creditors in full then this process would be the option for you. A Members’ Voluntary Liquidation is a tax efficient method for distributing or restructuring the assets and/or trade of a company
This is article no. 218 of the series of editorials written by the author on corporate laws {including Companies Act, 2013, SEBI, RBI Regulations, IBC, LLP Act, 2008 etc.}.
Introduction:
Liquidation (or “winding up”) is a process by which a company’s existence is brought to an end.
The provisions concerning to Voluntary Winding up of Company was specified in section 304-325 of Companies Act, 2013 although these provisions not at all notified. As the IBC got the president assent on 28/05/2016 as per section 255 and schedule XI of IBC the sections of Voluntary winding up “Omitted” from Companies Act, 2013. Prior to 1st April, 2017 voluntary Winding up was ongoing in Companies Act, 1956.
VIA Notification No. IBBI/2016-17/GN/REG010 dated 31st March, 2017 IBBI has notified the Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017. The same has been published in the official gazette. As a result of the same w.e.f. 1st April, 2017 voluntary winding up shall be conduct under Insolvency and Bankruptcy Code, 2016 (hereafter referred as “IBC”).
These Regulations shall apply to the voluntary liquidation of corporate persons under Chapter V of Part II of the Insolvency and Bankruptcy Code, 2016.
Highlights:
> Insolvency Professionals shall act as liquidator.
> The corporate person shall from the liquidation commencement date cease to carry on its business except as far as required for the beneficial winding up of its business
> The liquidator shall endeavor to complete the liquidation process of the corporate person within twelve monthsfrom the liquidation commencement date.
> The liquidator shall preserve a physical or an electronic copy of the reports, registers and books of account referred to in Regulations 8 and 10 for at least eight years after the dissolution of the corporate person, either with himself or with an information utility.
Process of Voluntary Winding up:-
The Winding up of a Company can also be done voluntarily by the members of the Company, if:
- If the Company passes a Special Resolution in the General Meeting for winding up of the Company.
- The Company in general meeting passes a resolution requiring the Company to be wound up voluntarily as a result of the expiry of the period of its duration, if any, fixed by its articles of association or on the occurrence of any event in respect of which the articles of association provide that the company should be dissolved.
The Voluntary winding up process applies where the directors and shareholders decide to cease trading their solvent limited company.
STEP-1
CONVENE A BOARD MEETING with two Directors or by a majority of Directors.
1.1. Pass a resolution for proposal of Voluntary Liquidation of the Company.
1.2. Prepare 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 – section 59(3) (a) of Insolvency Code, 2016.
1.3. File the declaration with ROC in e-form GNL-2
1.4. Attachment to Declaration:
- audited financial statements and record of business operations of the corporate person 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 corporate person, if any, prepared by a registered valuer;
STEP-2
CONVENE A GENERAL MEETING: Within 4 weeks of passing of above said declaration hold the meeting of Shareholders for the following purposes:
2.1. Pass a Special Resolution for approving the proposal of Voluntary Liquidation of the Company.
2.2. Appoint an insolvency professional to act as the liquidator. Resolution should contain the terms and conditions of the appointment of the insolvency professional, including the remuneration due to him.
2.3. File the special resolution with ROC in e-form MGT-14
STEP-3
APPROVAL OF CREDITORS IF COMPANY OWES DEBT:
3.1. If 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 by the shareholders within seven days of passing of such special resolution.
3.2. Approval can be by holding of Meeting, by Consent of 2/3 of creditors in writing etc. Company will place the copy of resolutions before the creditors for their approval.
Commencement of voluntary liquidation
A voluntary liquidation for a corporate person shall be deemed to have commenced from the date of passing of the resolution (after approval from the creditors of the Company).
STEP-4
PUBLIC ANNOUNCEMENT BY THE LIQUIDATOR:
The liquidator shall make a public announcement in Form A of Schedule I within five
days from his appointment (i.e. 5 days from the date of General Meeting).
4.1. The public announcement shall-
- Call upon stakeholders to submit their claims as on the liquidation commencement date; and
- Provide the last date for submission of claim, which shall be thirty days from the liquidation commencement date.
4.2. The announcement shall be published-
i. 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;
ii. On the website, if any, of the corporate person; and
iii. On the website, if any, designated by the Board for this purpose.
STEP-5
PROCEEDINGS BY LIQUIDATOR:
5.1. The liquidator shall submit a Preliminary Report to the Company within 45 days from the liquidation commencement date, detailing as given below. The liquidator shall preserve a physical as well as an electronic copy of the reports for eight years after the dissolution of the corporate person.
– the capital structure of the Company
– the estimates of its assets and liabilities as on the liquidation commencement date based on the books of the Company
– Whether he intends to make any further inquiry in to any matter relating to the promotion, formation or failure of the Company 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.
5.2. Maintenance of Registers and Books of Account:
5.2.1. The liquidator shall maintain the registers and books (as mentioned in regulation 10), as may be applicable, in relation to the voluntary liquidation of the corporate person, and shall preserve them for a period of eight years after the dissolution of the corporate person.
5.2.2. Where the books of account of the corporate person are incomplete on the liquidation commencement date, the liquidator shall have them completed and brought up-to date, with all convenient speed.
5.2.3. The liquidator shall keep receipts for all payments made or expenses incurred by him
5.3. Liquidator has following duties & Rights:
5.3.1. The liquidator may call for such other evidence or clarification as he deems fit from a Claimant for substantiating the whole or part of its claim.
5.3.2 Verification of claims:
5.3.2.1. The liquidator shall verify the claims submitted within thirty 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 40 of the Code.
5.3.2.2. A creditor may appeal to the Adjudicating Authority against the decision of the liquidator as per section 42 of the Code.
5.3.3. List of stakeholders:
5.3.3.1. The liquidator shall prepare the list of stakeholders within forty-five days from the last date for receipt of claims.
5.3.3.2. The liquidator shall prepare a list of stakeholders on the basis of proofs of claims
submitted and accepted under these Regulations, with-
- the amounts of claim admitted, if applicable,
- the extent to which the debts or dues are secured or unsecured, if applicable,
- the details of the stakeholders, and
- The proofs admitted or rejected in part, and the proofs wholly rejected.
5.3.4. Paid Money into Bank Account:
5.3.4.1 The liquidator shall open a bank account in the name of the corporate person followed by the words ‘in voluntary liquidation’, in a scheduled bank, for the receipt of all moneys due to the corporate person.
5.3.4.2. All payments out of the account by the liquidator above five thousand rupees shall be made by cheques drawn or online banking transactions against the bank account.
5.3.5. Distribution.
5.3.5.1. The liquidator shall distribute the proceeds from realization within six months from the receipt of the amount to the stakeholders.
5.3.5.2. The liquidation costs shall be deducted before such distribution is made.
STEP-6
COMPLETION OF LIQUIDATOR:
6.1. The liquidator shall endeavor to wind up the affairs of the corporate person within one year from the voluntary liquidation commencement date.
6.2. In the event of the voluntary liquidation continuing for more than one year, the liquidator shall.
6.2.1. call a meeting of the contributories of the corporate person within fifteen days from the end of the year in which he is appointed, and at the end of each succeeding year; and
6.2.2. Shall present a Status Report indicating progress in liquidation, including-
- Settlement of list of stakeholders,
- Details of any property that remain to be sold and realized,
- Distribution made to the stakeholders, and
- Distribution of unsold property made to the stakeholders;
- Developments in any material litigation, by or against the corporate person; and
- Filing of, and developments in applications for avoidance of transactions in accordance with Chapter III of Part II of the Code.
6.2.3. The Status Report shall enclose an audited account of the voluntary liquidation showing the receipts and payments pertaining to liquidation since the liquidation commencement date.
STEP-7
PREPARATION OF FINAL REPORT:
7.1. Final Report: On completion of the liquidation process, the liquidator shall prepare the Final Report consisting of:
7.1.1. An audited account of the voluntary liquidation, showing the receipts and payments pertaining to liquidation since the liquidation commencement date; and
7.1.2. A statement demonstrating that-
- the assets of the Company has been disposed of;
- the debt of the Company has been discharged to the satisfaction of the creditors;
- No litigation is pending against the Company or sufficient provision has been made to meet the obligations arising from any pending litigation.
7.1.3. sale statement in respect of all assets containing: i) the realized value; (ii) cost of realization, if any; (iii) the manner and mode of sale; (iv) an explanation for the shortfall, if the value realized is less than the value assigned by the registered valuer in the report of the valuation of assets (v) the person to whom the sale is made; and (vi) any other relevant details of the sale.
STEP-8
SUBMISSION OF FINAL REPORT/ APPLICATION WITH NCLT:
8.1. The liquidator shall send the Final Report to by registered post at their registered address and by electronic means –
- The contributories of the corporate person;
- The registrar; and
- The board,
8.2. Submission with NCLT:
Where the affairs of the Company have been completely wound up, and its assets completely liquidated, the liquidator shall make an application to the NCLT in form NCLT-1 for the dissolution of such Company
STEP-8
ORDER BY NCLT:
The Tribunal shall fix a date for the hearing of the petition. Where the Tribunal satisfied with the application. NCLT to 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-9
FILING OF ORDER WITH ROC:
The order of the Tribunal shall be filed with the Registrar by the company within a period of 14 days of the receipt of the copy of order, or such other time as may be fixed by the Tribunal.
CONCLUSION:
Suspension of Process of Liquidation: If liquidator is of the opinion that the voluntary liquidation is being done to, defraud a person, he shall make an application to the Adjudicatory Authority to suspend the process of voluntary liquidation. Where the liquidator is of the opinion that the corporate person will not be able to pay its debts in full from the proceeds of assets to be sold in the voluntary liquidation, he shall make an application to the Adjudicating Authority to suspend the process of voluntary liquidation.
As now Registered Insolvency Professional will be required to act as a Liquidator in case of winding up proceedings. It is a great opportunity for the Company Secretaries. It will help to boost our profession on a new height.
(Author can be reached at csdiveshgoyal@gmail.com )
Author Bio
Dear Divesh sir
Thank you so much for sharing such good article
However I require clarification on existing voluntary winding up proceedings. Whether we require to appoint new liquidator who is insolvency professional in place of existing voluntary liquidator. As existing liquidator does not possess requisite qualification of insolvency professional
I request you kindly clarify on this matter