Voluntary Liquidation under Section 59 of the Insolvency and Bankruptcy Code, 2016

 

Voluntary liquidation under Section 59 of the Insolvency and Bankruptcy Code, 2016 read with Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017 allows a solvent company to close its operations on its own. This means the company is not in financial distress and is able to pay off all its dues. It is a formal process that a company chooses to follow when it decides to shut down business activities permanently, usually due to internal business decisions or the end of its purpose.

Requirements

To initiate voluntary liquidation under this section, a company must meet the following key conditions:

1.   The company must not be in financial default. It should be in a position to pay all its debts from its existing assets.

2.  A majority of directors must formally declare that the company is solvent. They must confirm they have reviewed the company's financial position and believe that the company can pay off its debts fully and is not closing to deceive or harm anyone.

3.  The declaration of solvency by the directors must be supported by documents including recent audited financial statements, a report from a registered valuer on the company’s assets (if any), and disclosures of any legal or regulatory matters still pending.

 

4.  A special resolution must be passed by the shareholders in a general meeting approving the voluntary liquidation and appointing a liquidator to carry out the process.

5.  If the company owes any money to any creditor, the approval of creditors representing at least two-thirds of the total debt value is also required.

Procedure

Once the requirements are met, the following steps are followed:

1. The directors make a formal declaration of solvency with supporting documents in a duly held Board Meeting of the Company.

2.  The shareholders approve the decision through a special resolution and appoint a professional liquidator in the General Meeting, within 04 weeks of the Declaration by Directors.

 

3.   If the company has creditors, their approval must also be obtained within 07 days after the shareholders’ resolution.

 

4.  The decision to liquidate is then reported to the Registrar of Companies and the Insolvency and Bankruptcy Board of India, within 05 and 07 days respectively.

 

5.    A public advertisement is issued within 05 days inviting any claims from the stakeholders of the company within 30 days. The liquidator receives and verifies these claims and prepares a preliminary report within 45 days followed by a list of stakeholders of the company within 75 days from the liquidation commencement date.

 

6.   The liquidator then proceeds to sell the company’s assets (if any), settle debts, and distribute any remaining funds to the shareholders.

 

7.   Once everything is completed, the liquidator prepares a final report and submits it to the relevant authorities including the National Company Law Tribunal, along with the dissolution application.

 

8.  After reviewing the submitted dissolution application, the tribunal passes an order formally dissolving the company.

 

9.  A copy of the dissolution order is sent to the Registrar of Companies, and the liquidator is responsible for maintaining the records for a fixed period after closure.

Time Limit

The voluntary liquidation process as per the regulations is stipulated to be completed within a defined period. If the company has creditors involved, the process should ideally be completed within 270 days from the date of approval. If there are no creditors, it must be completed in about 90 days.