Background:
The successful closure of a software company entered under the process of voluntary liquidation under the Insolvency and Bankruptcy Code, 2016. The company had two equity shareholders holding equal stakes (50% each) and one preference shareholder holding (100%).
During the process to approve voluntary liquidation, the Company faced a stalemate as both equity shareholders were required to pass a special resolution to approve liquidation process of the company. With equal control, neither side could secure the 75% being the majority required for passing special resolution. One equity shareholder persistently opposed every decision, stalling the process and risking asset value erosion.
As per the Articles of
Association and Section 47 of the Companies Act, 2013, the preference
shareholder was entitled to vote on resolutions concerning winding up of the
company or any action affecting their rights.
Strategy and Resolution of deadlock for commencement of closure:
Recognizing the deadlock, the Firm strategically advised the promoter regarding
their voting rights of the preference shareholders under Section 47(2)
of the Companies Act, 2013, since the resolutions related directly to
winding up. By engaging with the preference shareholder and ensuring his rights
were properly represented, the Firm secured its affirmative vote breaking the
impasse and enabling the passage of the required resolutions. We also relied on
provisions under the IBC, 2016 specifically Sections 35 and 36 to
exercise control over asset realization and distribution independently, once
shareholders consent on key matters was achieved. Through transparent
communication and compliance with statutory requirements, the process moved
towards closure efficiently.
Outcome:
After the resolution was
duly passed, the voluntary liquidation process was initiated and carried out in
accordance with the prescribed procedures. Over precise execution timeline from
the commencement of liquidation, all necessary steps including asset
realization, settlement of claims, and compliance requirements were completed,
leading to the closure of the company’s affairs. Subsequently, the matter was
placed before the Adjudicating Authority (NCLT), which reviewed the entire
process, verified that all legal and regulatory compliances had been met, and,
upon satisfaction, issued the final order for the company’s dissolution,
thereby bringing its legal existence to an end.
Key Takeaway:
By tactfully leveraging preference shareholder’ voting right and operating
within the framework of the Companies Act, 2013 and IBC, 2016,
the Firm effectively overcame a deadlock, safeguarded interest of shareholders,
and ensured a smooth and successful voluntary liquidation.
