In India, the voluntary liquidation or voluntary winding up of a company is administered under the Insolvency and Bankruptcy Code (IBC), 2016. It applies to ‘a business/corporate person.’ But, what is Liquidation Under IBC? Well, voluntary liquidation under IBC is the procedure for voluntary liquidation of a company with the consent/agreement of its various members.
Typically, a company goes for voluntary liquidation under IBC or company liquidation process when its members make a decision to not continue their business operations. The main objective of voluntary winding up under IBC is to suspend all business operations and dispense its assets, while also disbursing its debts and arrears.
To help you understand the process of voluntary liquidation under IBC or how a liquidation of company works, here’s a checklist of step-by-step procedure:
Step 1: Declaration/Announcement of Solvency by Board or Elected Partners
The Management/Directors of the Company has to make a Declaration of Solvency by presenting a form of an Affidavit that confirms the following:
The declaration statement shall list the corporate body’s debt status, as on that date alongside Audited financial statements and records of company’s operations for the preceding two years, or for the period after the incorporation. Additionally, a valuation report of the company’s by a Registered Valuer, if any, needs to be declared.
For the same, the declaration of solvency under voluntary liquidation regulations should be filed in Form GNL-2 with the Registrar of Companies.
The Board of Directors/Executive Management has to identify and recognize an Insolvency Expert, who is listed with the Insolvency and Bankruptcy Board of India (IBBI). This Insolvency Expert act as the company’s ‘Liquidator’ to carry out the voluntary liquidation procedure.
Summon a meeting of Board of Directors/ Executive Management to decide the following:?
Arrange a General Meeting of shareholders/ investors within 4 weeks of the Declaration of Solvency and to pass these subsequent resolutions:?
If the company has creditors, a resolution has to be passed by the creditors who hold 2/3rd?of the balance due, within 7 days duration of the decision.
As mentioned under voluntary liquidation regulations, the company’s liquidator has to file the voluntary liquidation resolutions to the Registrar of Companies & the IBBI. Being subjected to the creditor’s approval, the liquidation of company procedures are considered to have commenced from the date when the members pass the resolution.
With the passing of special resolutions in the general meeting and appointment of Insolvency Liquidator, all functions/powers of the board of directors (BODs), key managerial personnel (KMPs) and the partners of the company debtor shall cease to have any effect and will be vested into the role of the liquidator.
The liquidator/ insolvency professional will now take control of the company and go on with further actions, which includes:
The company liquidator shall also have the capability to seek advice from any shareholders who are entitled to the distribution of the earnings/proceeds.
The company liquidator is obliged to make a public announcement within 5 days from his date of appointment in ‘Form A of Schedule I’, calling shareholders to present their claims in 30 days from the commencement date of the liquidation.
The public announcement should be issued to get published in English and other regional language newspapers that have an extensive circulation network. Details regarding the company’s physical location with registered office address, alongside the company’s official website, must be published to the newspapers.
Besides, the liquidator has to verify all claims, within 30 days from the last date of receipt of claims, and choose to either accept or refuse the requests.
The liquidator must make a list of shareholders within 45 days from the last date for receipt of claims based on proof obtained with:
The liquidator needs to submit a preliminary report addressed to the company within 45 days from the commencement of the voluntary liquidation process affirming:
The liquidator is liable to open a bank account in a listed bank (in the company’s name) that is followed by the words ‘In Voluntary Liquidation’ for getting all the money’s due and realize liquidation costs.
Any kind of payments, above 5000 Rupees, should be conducted by drawing a cheque or through online banking, so as to keep a track on all related transactions.
The liquidator has to get a No-Objection Certificate/Letter from appropriate Tax authorities of the area where the company’s registered office is located.
The liquidator shall recuperate and realize the company’s assets promptly to maximize the value for the shareholders.
Thus, the money realized under IBC’s voluntary liquidation, shall be deposited into the bank account that’s opened on the company’s name to fulfil this purpose.
The money recognized and ascertained from the proceeds shall be distributed to the shareholders within 6 months from the amount’s receipt, after deducting all liquidation costs.
If any asset cannot be realized because of its nature or other circumstances, the liquidator can distribute it as such after the company’s approval.
The elected liquidator has to complete the liquidation process of a company within 12 months from the date of commencement of the voluntary winding up the company, under IBC.
If the liquidation process goes beyond the 12-month period, then the liquidator has to hold a meeting of contributors within 15 days, from the end of 12 months period. Additionally, the liquidator also has to hold a meeting for every succeeding 12 months, until the company is entirely dissolved.
Subsequently, the liquidator shall also present an annual report indicating the progress of the voluntary liquidation process, which shall include:?
After the competition of the liquidation of company, the liquidator has the responsibility to prepare the Final Report, which contains the following:?
The company liquidator now shall file the final report with the Registrar and the IBBI to ensure all obligations for Voluntary winding up of a company under IBC is met.
Once the company affairs are completely winded up, the liquidator has to proceed with an application to NCLT for the company’s dissolution.
The NCLT passes an order stating that the company shall stand dissolved from the date of order of the NCLT application.
After receiving the NCLT’s order, the copy of the NCLT order shall then be sent to the registrar, where the company is registered officially.
The liquidator has to preserve and store all necessary reports, registers and account books for at least the succeeding 8 years, after the company’s dissolution.
TRC Corporate Consulting’s insolvency services offer you with years of expertise that our financiers and lawyers have achieved. Due to our insolvency and bankruptcy expert’s extensive experience in collaborating with clients from around the world, you can be assured that the delivered assistance would be based considering the various legal compliances and laws.
At TRC Corporate Consulting, we don’t just consider you to be a client, we think of you as our business partner, and provide you with IBC advisory services and help your understand more about the different types of voluntary winding up while fulfilling your business requirements are always our number one priority. For further understanding of our services related to Voluntary Liquidation Process, or any other financial advisory service, contact us!