Section 304 of the Companies Act, 2013, provides for voluntary winding by the
Company. But the concept of Voluntary Liquidation of Corporate Persons is
distinguished from the companies' voluntary winding up as stated under the
Companies Act, 2013. Section 59 of Chapter V of Insolvency and Bankruptcy Code,
2016, talks about Voluntary Liquidation of Corporate Persons. The main focus is
to understand Voluntary Liquidation of Corporate Persons and under that the
procedure, 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 itself
voluntary 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.
Procedure for Voluntary Liquidation of Corporate Persons:
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.
Declaration of Insolvency:
Under Section 59(3)(a)(i) of Insolvency and
Bankruptcy Code, 2016, it is stated that a Corporate Person has to make a
declaration from the majority of the directors of the Company by filing an
affidavit, they have to make a full inquiry into the affairs of the Company, and
the Corporate Person has to form an opinion that either the Company has no debt
or the Corporate Person has to state that it will be able to pay the due debts
in full from the proceeds of assets of the Company that is to be sold in the
Thus, any Company can apply for Voluntary Liquidation if
that Company has not defaulted any person or defaulted in payment of that person
and can repay its debt in full can apply. Section 3(12) of Insolvency and
Bankruptcy Code, 2016, defines 'default' as the non-payment of the debt when all
the due debts or the installments are payable but not repaid by the Corporate
Debtor or the Debtor as the case may be.
Along with this, the Corporate Person
has to ensure or state that the Corporate Person has not Liquidated to defraud
any person in its affidavit. In addition to this, the Insolvency and Bankruptcy
Board needs to list each debt on the corporate person's date. It has to make
sure that the Corporate person shall pay its debt in full from the proceeds of
the corporate person's assets to be sold in the Liquidation.
The Declaration of the Liquidation process is incomplete
without the essential documents that need to be attached with the declaration by
the Corporate Debtor. Section 59(3)(b) of the Insolvency and Bankruptcy Code,
2016, specifies the documents.
- The declaration shall be accompanied with the documents which include
audited financial statements and 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, the period of two years or the
period when the Company is established will depend upon whichever is later.
- The Company is bound to give the valuation of the Company's assets if
there is any which the registered valuer prepares.
In case of the Company applying for declaration, after the Company files the
declaration, a meeting shall be held to approve the Company's Declaration and
for the Company's winding up. Before the commencement of the declaration, the
Corporate Person needs the approval of Members, Creditors and finally, need to
communicate to Registrars of Companies (ROC) and Insolvency and Bankruptcy Board
As per the provisions of the Insolvency and bankruptcy code, 2016, the
comprehensive process for Voluntary Liquidation and its accompanying regulations
are as follows:
Effect of the Liquidation Process:
- Appointment of Liquidator:
The Company's members need to appoint the Insolvency Professional after
furnishing the Declaration of the Voluntary Liquidation Process. It is a
must to appoint only an eligible Insolvency Professional for the Voluntary
- Public Announcement by Liquidator:
When the Liquidator is appointed, the
Liquidator must make a public announcement, but it should be within five days of
the appointment. After the Liquidator makes a public announcement, The
Liquidator has to request the stakeholders to submit their respective claims
within 30 days of the commencement of the Liquidation Process, which shall be
considered as the last date for submission of the claims by the stakeholders for
which the Liquidator has made a request for. After the Liquidator has made a
public announcement, it needs to published in an English newspaper and one in a
regional language newspaper. Still, that newspaper should be in wide circulation
at the respectively registered office and this in the Corporate Person's
- Submission of proof of claim by Creditors:
Within the time provided, all
persons who claim that they are the Stakeholders of the Corporate Person need to
submit and prove their claims for debt they made once the Liquidator makes the
public announcement. The person who is claiming to be a Stakeholders or
Creditors of the Corporate Creditor needs to submit their proof of claims and
the annexing documents in the prescribed forms described under the Insolvency
and Bankruptcy Code, 2016.
- Verification of claims:
The Liquidator needs to verify all the
stakeholders' claims or Creditor after 30 days from the date they made their
claims that the Creditors made. It will be discretion on the Liquidator part
whether to accept or reject the received claims while verifying the claims made
by the stakeholders or Creditors. The Liquidator can also ask for any relevant
information from the claimants needed while verifying those claims.
- Preparation of a list of Stakeholders:
After verifying those claims made
by the Creditors or stakeholders, the Liquidator needs to make a list of
stakeholders who made claims that the liquidator is accepted after verifying
those claims. After the date when the claim's receipt was given, the list needs
to be prepared within 45 days as specified above.
- Realization of assets of the Corporate Person:
When the stakeholder's
list is finalized, then the Liquidator has to start with the commencement of
realizing the corporate person's assets. In a prescribed mode or manner as
approved by the Corporate Person, the Liquidator himself or with the registered
valuer's assistance shall ascertain the assets' value. Simultaneously, the
Liquidator, along with the registered valuer's assistance, shall commence the
sale of the assets as approved by the Corporate Person in a prescribed mode or
manner. Within the due time, the Liquidator shall begin realizing all the
corporate person's dues and initiating a recovery process to realize all the
assets. It has to be notified of the Liquidator that if there is any uncalled
amount from any contributory, then the Liquidator at the time of realizing the
assets shall call for the uncalled amount from that contributory.
- The opening of a separate bank account of a Corporate Person:
receiving all the money due to the Corporate Person, the Liquidator shall open a
separate bank account in a scheduled bank while realizing all the corporate
person's assets the Voluntary Liquidation Process. The name in the Voluntary
Liquidation Process in the bank account shall include "involuntary liquidation"
as part of the name in the bank account. The Liquidator is supposed to deposit
all money, including the cheques and demand drafts of the Corporate Person in
the bank account, while acting as the Liquidator of the Corporate Person. All
payments that are more than five thousand rupees shall be deposited in the bank
only in cheque or online banking transactions.
- Distribution of the realized proceeds:
Within six months which has to be
counted from the date of the receipt of the amount among the stakeholders, the
Liquidator needs to distribute the realized proceeds after realizing all the
assets are done and opening the bank account by the Liquidator. Before
distributing the realized proceeds, the Liquidator shall deduct or reimburse the
Liquidation cost incurred. With the Corporate Person's approval, the Liquidator
realizes that he has come across the peculiar assets or cannot be readily or
advantageously sold. The Liquidator shall distribute the assets among the
stakeholders while distributing other assets of the Corporate Person.
- Preparation for final report:
When the Liquidator completes the
distribution of assets of the Corporate Person, the Liquidator needs to draft a
final report of the Liquidation Process by consolidating audited accounts used
in the Liquidation Process along with the report. When the Liquidator drafts the
Liquidation Process's final report, the final report needs to be sent to the
concerned Registrar of Companies, Insolvency and Bankruptcy Board and the
National Company Law Tribunal.
- Application for dissolution of the Corporate Person:
After the Corporate
Person has completed the wound up and realization of all the assets, which are
then distributed among the stakeholders, the Liquidator needs to apply to the
Adjudicating Authority the dissolution of the Corporate Person. Once receiving
the Corporate Person's application for the dissolution of the Corporate Person,
the concerned Adjudicating Authority shall pass an order of dissolution of the
Corporate Person on the application's receipt. The dissolution order shall be
made in favour of the Corporate Person and stating that the Corporate Person
shall stand dissolved from the date of the order passed by the Adjudicating
From the Liquidation Process's commencement date, the Corporate person shall
deem to carry on the business. Only for the beneficial winding up of the
Liquidation Process, the Corporate Person can carry on the business. As per the
Provision of the Insolvency and Bankruptcy Code, 2016, even after the
Liquidation Process, the Corporate Person shall exist until the board dissolves
the Corporate Person.
Power and Duties of Liquidator:
Section 290 of the Companies Act, 2013, deals with the Company Liquidator's
powers and duties. Under Section 290(1), in the tribunal's winding up, the
Company Liquidator shall have the powers but subject to any direction given by
The powers are as follows:
Completion of Liquidation:
- For the Company's beneficial winding up, the Liquidator shall carry on
the business if necessary
- The Company Liquidator has the power to do all deeds, receipts, other
documents and do all the acts and execute them in the name of the Company or
on behalf of the Company.
- The Liquidator can sell all the undertakings of the Company as a going
- If Liquidator needs to raise any money required of the assets on the
Company's security, the Liquidator has the power to do so.
- The Liquidator can inspect the records or the Company's returns on the
Registrar files or any other authority.
- When the Company Liquidator is unable to protect the assets of the
Company, then he can take the assistance of any professional or appoint any
other person to discharge the duties, responsibilities and obligations of
the Company Liquidator, or he can appoint any person or an agent to do that
business that Company Liquidator is unable to do himself in the Company.
Under Regulation 37 of Insolvency and Bankruptcy Board of India (Voluntary
Liquidation Process) Regulation, 2017, Liquidation's Completion is stated.
Within one year from the Voluntary Liquidation Process's commencement date, the
Liquidator has to wind up the corporate person's affairs. He has to call for the
meeting within 15 days from the commencement of the date when he was appointed
as a Liquidator and at the end of each succeeding year.
The Liquidator needs to
make a status report that shall enclose all the audited accounts of the
Voluntary Liquidation. The report must show all the receipts and payments
incurred by the Liquidator for Voluntary Liquidation Process from the
Liquidation Commencement date.