Voluntary Liquidation of Company
(Section 59 of the Insolvency and Bankruptcy Code, 2016)
> Application for Voluntary Liquidation:-
A Company who intends to liquidate itself voluntarily and has not committed any default on any debt to any person may initiate voluntary liquidation proceedings.
A Company may choose to be wound up voluntarily under several circumstances including winding up as a result of expiry of period of operation fixed in its Articles of Association or occurrence of an event provided in its Articles of Association for its dissolution.
> Conditions for voluntary liquidation of a Company:-
(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:
(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.
> Convene a board meeting to discuss and approve following matters subject to the approval of Members in the General Meeting:-
i. Voluntary winding up of the company
ii. Appointment of Liquidator (An insolvency professional shall be appointed who is independent from the company)
iii. To consider and approve Declaration of Solvency and affidavit by the directors of the Company.
iv. To fix day, date, time and to send notice and agenda for General Meeting.
> Convene the Meeting of Members:-
Within four weeks of a declaration, a member’s resolution in favor of the voluntary winding up of the company and appointment of insolvency professional to act as the liquidator has to be passed.
Provided that where the corporate debtor is a company, creditors representing two thirds in value of the debt owed to the company have to support the resolution within seven days of such resolution.
> The company also has to notify the Registrar of Companies in form MGT-14 and the Insolvency and Bankruptcy Board of India within seven days of the passing of the resolution or subsequent approval by the creditors as the case may be.
> The company also has to notify the Registrar of Companies in form GNL-2 regarding Declaration of Solvency and Appointment of Liquidator.
> 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 in general meeting.
> Once the affairs of the Company have been wound up and its assets completely liquidated, the liquidator shall make an application to NCLT/Adjudicating Authority for the dissolution of such Company.
> The Company shall be dissolved by the order of the NCLT/Adjudicating Authority
> Within 14 days from the date of such order a copy of the same shall be filed with the Registrar of Companies and other authority where the company is registered, if any.
IMPORATANT RULES AND REGULATIONS
> Appointment of Liquidator:-
An insolvency professional shall be eligible to be appointed as a liquidator if he, is independent of the Company
> Public Announcement by Liquidator:-
The liquidator should make a Public Announcement (PA) in Form A within 5 days from his appointment to be published in one English Newspaper and one Regional Language Newspaper having wide circulation where the registered office and the principal office if any, of the Company is situated.
It should also be displayed on the website, of the Company; and on the website, designated by IBBI for his purpose.
> All money to be paid in to Bank Account:-
Bank Account needs to be opened in the Name of the Company followed by the words ‘in voluntary liquidation’ in a scheduled bank by Liquidator.
> Preliminary Report:-
Preparation of Preliminary Report by IP (To be submitted within 45 days from the commencement of the liquidation process to company).
> Submission of Proof of Claim:-
| Particulars | Form No. |
| Claims by Operational Creditors | Form B of Schedule-I |
| Claims by Financial Creditors | Form C of Schedule-I |
| Claims by Employee or workmen | Form D of Schedule-I |
| Claims by Numerous Employee or workmen by Authorized Representative | Form E of Schedule-I |
| Claims by other stakeholders | Form F of Schedule-I |
Submit proof of claim to the liquidator in person, by post or by electronic means.
> Verification of claims and list of stakeholders:-
The liquidator shall verify the claims submitted within 30 days from the last date for receipt of claims and may either admit or reject the claim.
Liquidator shall prepare list of stakeholders within 45 days from the last date for receipt of claims.
> Distribution:-
The liquidator shall distribute the proceeds within 6 months from the receipt of amount to the stakeholders. The liquidation costs shall be deducted before such distribution is made.
The liquidator may, with the approval of the Company, distribute amongst the stakeholders, an asset that cannot be readily or advantageously sold due to its peculiar nature or other special circumstances.
> Completion of liquidation:-
The liquidator shall complete the entire process within 12 months from the date of commencement of liquidation.
> Final Report:-
To prepare Final Report with details consisting of – Details of Audited Accounts of Liquidation & a statement containing Disposal of Assets of the Company, Disposal of the debts of the Company to the satisfaction of creditors, Disposal of litigation pending against/Sufficient Provision for any obligation arising out of any pending litigation; Statement of Sale of Assets showing Realized value, Cost of Realization, Manner & Mode of Sale, Details of the person to whom the sale is made, Explanation stating reasons for shortfall if the value of sale realized is less than the value is assigned.
The Final report needs to be sending to the ROC by filing GNL-2, The IBBI via Courier/E-mail & the Adjudicating Authority i.e NCLT via Physical Filing.
Author Bio
Is it legally required to get the annual account audited after commencement of Voluntary Liquidation but before 12 months . If no, which provision, circular, guidelines, NCLT decision provides for it. Kindly confirm.
Request for a clarification. Whether the company has to open a new account or the running account can be converted to the A/c for liquidation. If so what has to e done with the available balance, whether it has to be kept separately or can be treated as balance available for the liquidation
As a senior in profession as a CPA, I appreciate this article and also want actual professionals who have handled voluntary liquidation and the obstacles faced be narrated either as comments or as articles. This will encourage younger writers to keep up the flag high.