Voluntary Liquidation under Insolvency & Bankruptcy Code, 2016 (IBC, 2016)
Voluntary Liquidation of Company
(Section 59 of the Insolvency and Bankruptcy Code, 2016)
This is a relatively newly introduced path for voluntary liquidation. Section 59 of IBC together with the Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017 provide the mechanism for voluntary liquidation of a corporate person
Voluntary liquidation refers to dissolution of a solvent company with the approval of Shareholders and Creditors of the Company.
This is a time bound process. The Whole Procedure of Voluntary Liquidation needs to be completed in 270 days from the date of Commencement of Voluntary Liquidation where creditors have approved the voluntary liquidations and 90 days from the date of Commencement of Voluntary Liquidation in the case where there are no creditors
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; Suppose XYZ Company is incorporated on 26.11.2019 in this case Financial Statements of Only 1 year is required.
(ii) a report of the valuation of the assets of the company, if any, prepared by a Registered Valuer.
Procedure to be followed for Voluntary Liquidation: –
Step No. | Particular | Explanation |
1. | Check Articles of Association of the Company | Articles must contain provision for the voluntary liquidation of a Company under Insolvency and Bankruptcy Code, 2016. In case there is no such provision in Articles, it must be altered by passing Special Resolution. Articles of association must authorize the Voluntary Liquidation of the Company. |
2. | Call for Board Meeting | Circulate a notice to inform about the scheduled board meeting in not less than 7 days. |
3. | Convene a Board Meeting to discuss and approve following matters subject to the approval of Members in the General Meeting:- | i. Voluntary Liquidate up of the company
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. |
4. | Filing of E-form | The declaration of solvency should be filed in Form GNL-2 with the Registrar of Companies within 7 days from the date of Board 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 |
5. | Convene General Meeting of Shareholders | Within four weeks of declaration, An Extra Ordinary General meeting of the shareholders of company will be conducted for the purpose of
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. |
Liquidation Commencement Date | 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.
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 |
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6. | Filing of E-form | The company has to file Form MGT-14 to Registrar of Companies and inform 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.
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 |
7. | Public Announcement | 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 calling stakeholders to submit their claims within 30 days from liquidation commencement date. |
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Necessary Intimations | The liquidator has to make necessary Intimations to IPA, IBBI, and Income tax authorities regarding his/her Appointment and commencement of Voluntary Liquidation.
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 |
9. | Preliminary Report | The liquidator shall submit a preliminary report to the company within 45 days from the commencement of liquidation stating:
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. |
10. | Opening of Bank Account | The liquidator shall open a bank account in a scheduled bank in the company’s name followed by the words “in voluntary liquidation’ for receiving all the money’s due and realized to meet liquidation cost. For Example….All payments made above Rs. 5000 shall be done only by drawing cheque or through online banking transaction. |
11. | Realization of Assets | The liquidator shall recover and realize the assets of the company in a time-bound manner maximizing the value of the stakeholders. The money realized shall be deposited in the bank account opened for this purpose.
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. |
12. | Distribution | The liquidator must distribute the proceeds from realization within 30 days from the receipt of the amount to the stakeholders.
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. |
13. | Completion of Liquidation | The liquidator has to complete the process of liquidation within 270 days from the date of commencement of liquidation where creditors have approved the resolution under section 59 and 90 days from the liquidation Commencement date in all other cases. |
14. | Final Report | Once the Liquidation process is completed, the liquidator has to prepare the Final Report containing:
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). |
15. | Filing
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The Liquidator shall then file the Final report with the Registrar and the IBBI. |
16. | Application to NCLT | When the affairs of the company are completely wound up, the liquidator has to make an application to NCLT for dissolution of the company. |
17. | Filing of Order | Liquidator shall forward the copy of order to the registrar where the company is registered in form INC-28 within 14 days. |
18. | Preservation of records | The liquidator has to preserve the reports, registers and books of accounts for at least 8 years after the dissolution of the company. |
Hello Maam, I want to ask a question regarding this article. In case of Statutory Auditor is an appointed during Voluntary liquidation there is a need to file ADT-1 Form, if yes so under which provision or if not then why or under which provision
Hello, As the IBC Regulations, Liquidator can appoint any professional for his assistance in voluntary liquidation so there is no need to file any ADT-1
VERY INTERESTING ARTICLE
very informative article
very informative article about voluntary liquidation, all concepts are explained in detail
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