Last updated: April 21st, 2022 12:31 PM

Voluntary Liquidation of Corporate Persons

Voluntary Liquidation of a Company in India is administered under Section 59 of Chapter V of Insolvency and Bankruptcy Code, 2016 and it applies to a corporate person. The voluntary liquidation process applies when the directors and shareholders decide to cease trading their solvent limited company. The present article briefs the Procedure for Voluntary Liquidation of Corporate Persons.

Governing Law - Voluntary Liquidation of Corporate Persons

Section 59 of the IBC Code read with section 431(1)(c) and section 465 of the Companies Act 2013 and Rule 4 provides that all fresh proceedings for voluntary liquidation of corporate persons shall be governed under the provisions of the IBC Code and regulations made thereunder and shall be instituted before National Company Law Tribunal (NCLT).

Section 59 of Chapter V of the Insolvency and Bankruptcy Code

Section 59 of Chapter V of Insolvency and Bankruptcy Code, 2016, talks about the Voluntary Liquidation of Corporate Persons. This chapter states the procedure for Voluntary Liquidation of Corporate Persons initiation and effect of Liquidation, power, and duties of Liquidator, and completion of Liquidation.

• Section 59(1) states that if a corporate person intends to liquidate it voluntarily and proves that it has not committed any default, shall initiate proceedings of the Voluntary Liquidation process as described under the provisions of chapter V of Insolvency and Bankruptcy Code, 2016.
• Under sub-section (1) of 59, it is stated that Voluntary Liquidation of Corporate Persons shall meet all the conditions or procedural requirements as prescribed by the Insolvency and Bankruptcy Board.

Who can apply for Voluntary Liquidation?

A corporate person, be it a Company or a Limited Liability Partnership or any other person incorporated with limited liability under any law, who intends to liquidate itself voluntarily, may initiate liquidation proceedings under the provisions of Section 59 of Chapter V of Insolvency and Bankruptcy Code.

Essential Pre-conditions for Voluntary liquidation

Section 59(3) states that Voluntary Liquidation of Corporate Persons shall have to follow certain conditions or essential pre-conditions as stated by the Insolvency and Bankruptcy Board. Insolvency and Bankruptcy Code provided that only those corporate persons can make an application that has not committed any default and has not defaulted in payment and have a full capacity to repay debt are eligible for making an application for voluntary liquidation.

Procedure for Voluntary Liquidation of Corporate Persons

The procedure for Voluntary Liquidation of Corporate Persons is explained in detail below:

Declaration of Solvency by Director / Designated Partner

The Directors of the Company have to make a Declaration of Solvency in form of an Affidavit confirming the following:

• The company has not committed any default of repayment of debt and
• The company is solvent and it will be able to pay its debts in full from the proceeds of assets to be sold in the voluntary liquidation; and
• The company is not being liquidated to defraud any person.

Documents Required

The declaration shall list each debt of the corporate person as on that date along with the following documents that need to be attached for Declaration of Solvency by Director / Designated Partner:

• Audited financial statements for the previous two years or for the period when the Company is incorporated or established as the Company
• The record of business operations of the Company for the previous two years or the period since its incorporation
• The Company is bound to give the valuation of the Company's assets if there is any which the registered Valuer prepares. ( Valuation report of the assets of the company by a Registered Valuer)

The declaration of solvency should be filed in Form GNL-2 with the Registrar of Companies:

Appointment of Liquidator

The Company's members have to identify an Insolvency Professional, who is registered with the Insolvency and Bankruptcy Board of India (IBBI) to act as a Liquidator to conduct the voluntary liquidation process.

Communication to ROC & IBBI

After obtaining approval from members and creditors for undergoing voluntary liquidation, the company shall intimate about the resolutions to liquidate the corporate person to ROC and IBBI within seven days of receiving approval from members and creditors.

Convene Board Meeting

The company has to call a board meeting and pass a resolution for the proposal of voluntary liquidation of the company. Directors will have to decide the following:

• Voluntary liquidation of the company
• Appointing an Insolvency Professional as the Liquidator of the Company
• Fixing the day, date, and time for the general meeting of the company and Issuing notice of the EGM containing the proposed resolution along with the explanatory statement.

Convene General Meeting of Shareholders

Convene a General Meeting of shareholders within 4 weeks of the Declaration of Solvency and pass the following resolutions:

• Special Resolution in general meeting for liquidating the company voluntarily or an ordinary resolution for liquidating as a result of the expiry of any fixed period of its existence in articles
• Resolution appointing Liquidator of the company

Note: In case the company has creditors, a resolution should also be passed by the creditors holding 2/3^rd of the debt within 7 days of the member’s resolution.

Commencement of liquidation proceedings

The liquidation proceedings in respect of a corporate person shall be deemed to have commenced from the date on which special resolution is passed by the members along with the approval of creditors.

Public Announcement

The liquidator shall make a public announcement within 5 days from his appointment calling stakeholders to submit their claims within 30 days from the liquidation commencement date. It should be published in English and Regional language newspapers having wide circulation where the registered office is situated and also on the website of the company. The liquidator shall verify the claims within 30 days from the last date of receipt of claims and either accept or reject the claims. The liquidator shall prepare a list of stakeholders within 45 days from the last date for receipt of claims based on proof of claims received 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 are admitted or rejected in part, and the proofs wholly rejected.

Submission of claims

Once the public announcement is made by the liquidator, all persons who claim to be stakeholders of the corporate person shall submit and prove their claim for debts or dues to him, including interest, if any, within the provided time limit.

Verification of claims

On receipt of claims, the liquidator shall verify the claims received within 30 days to be computed from the last date for receipt of claims. Depending upon the documents of evidence submitted by the claimant for substantiating the whole or part of its claim the liquidator may either accept or reject the received claims.

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.

Distribution

The money realized from the proceeds shall be distributed to the stakeholders within 6 months from the receipt of the amount after deducting the liquidation cost. If any asset cannot be realized due to its nature or other circumstances, the liquidator may distribute it as such with approval from the company.

The period for completing the liquidation

The liquidator shall complete the liquidation process of the corporate person within 12 months from the liquidation commencement date. Or else hold a meeting of the contributory within 15 days at the end of every succeeding twelve months till the dissolution of the corporate person.

Final Report

Once the Liquidation process is completed, the liquidator has to prepare the Final Report containing:

• Audited accounts of the liquidation
• A statement showing the assets are disposed of, 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

Filing of Report to ROC & NCLT

Once the report is prepared by the liquidator, it shall be sent to the concerned registrar of companies, NCLT, and the Insolvency and bankruptcy board as well S The NCLT shall then pass an order that the company shall stand dissolved from the date of the order.

Filing of Order

The copy of the NCLT order shall then be forwarded to the registrar where the company is registered.

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.