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Voluntary liquidation under Insolvency and Bankruptcy Code, 2016
09 Jul 2017

Liquidation (winding up) is a process by which a company’s existence comes to an end. And dissolution is the end result of winding up process. During the process of winding up the legal entity of the Company remains intact. But after dissolution, Company’s existence comes to an end.

Members’ Voluntary Liquidation (winding up) is an option available for solvent company, which is able to pay off its debt. If Board of Director of the Company feel no longer any a purpose and the company has enough funds to pay back creditors in full then this process would be the option .

A Members’ Voluntary Liquidation is a tax efficient method for distributing or restructuring the assets and/or trade of a company.

On 31st day of March, 2017 IBBI have introduced Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017. Pursuant to which voluntary winding up shall be conducted under the provisions of Insolvency and Bankruptcy code, 2016.

Effect of the Voluntary liquidation on Status of the Corporate Person

The corporate person shall from the voluntary liquidation commencement date cease to carry on its business except as far as required for the beneficial winding up of its business.

Provided that the corporate state and corporate powers of the corporate person shall continue until it is dissolved.

Process of Voluntary Winding up

        i.           Convene Board Meeting

·        Pass Resolution for proposal of voluntary Liquidation of the Company

·        Prepare a declaration from majority of the directors of the company verified by an affidavit stating that—

they have made a full inquiry into the affairs of the company and they have formed an opinion that either the company has no debt or that 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 – section 59(3) (a) of Insolvency Code, 2016.

·        File the Declaration with Registrar of Company in Form GNL-2.

·        Attach Audited Financial Statements, Records of business operation of last 2 years, a report on valuation of assets of the Company.

 

      ii.           Convene General Meeting

Within four weeks from passing the board resolution, hold the meeting of Shareholders for the following matters:

·        Pass Special Resolution for approving thevoluntary Liquidation of the Company.

·        Appoint an insolvency professional to act as liquidator

·        File form MGT-14 with ROC.

    iii.           Appointment and remuneration of liquidator

·        An insolvency professional shall be eligible to appointed as a liquidator if he, and every partner or director of the insolvency professional entity of which he is a partner or director is independent of the corporate person

·        The remuneration due to the liquidator shall form part of the liquidation cost.

 

    iv.           Approval from Creditors

If Company owes debt to any person, creditors representing 2/3rd in value of debt of the Company shall approve the resolution passed by the shareholders with in seven days from passing of such resolution

A voluntary liquidation shall be deemed to have commenced from the date of passing of the resolution(approved by the creditors)

 

      v.           Public Announcement by liquidator

The liquidator shall make public announcement in FORM A of schedule I within five days from his appointment

The public announcement shall-

·        Call stakeholders of the Company to submit theirclaims as on the date of commencement of liquidation proceedings.

·        Provide the last date for submission of claim(which shall be thirty days from the date of commencement of voluntary liquidation)

Such announcement shall be published in:

                                I.           One English and one regional language newspaper with wide circulation at the location of the registered office and the principal office , if any, of the Corporate person and any other location wherein the opinion of the liquidator, the corporate person conducts material business operations.

                              II.           On the website, if any, of the corporate person; and

                            III.           On the website, if any, designated by the Board for this purpose.

 

    vi.           Liquidator’s proceeding

·        The liquidator shall submit a Preliminary Report to the Company within 45 days from the liquidation commencement date.

Preliminary Report of the liquidator may contain the following details:

                                I.           About capital structure of the Company

                              II.           Estimates of assets and liabilities as on the liquidation commencement date, based on their book values.

                            III.           Whether any furthers inquiry is required in his opinion

                           IV.           Proposed plan for carrying out the liquidation.

 

The liquidator shall preserves physical as well as an electronic copy of the reports for eight years after the dissolution of the corporate person.

 

·        Maintenance of Registers and Books of Accounts.

·        Where the books of accounts of the Company are incomplete on the date of commencement of liquidation proceedings, liquidator shall complete them.

·        Liquidator shall maintain the receipts for payments made or expenses incurred by him.

·        Liquidator may call such other evidence or clarification as he deems fit from claimant.

·        Appointment of Professionals

A liquidator may appointprofessionals to assist him in the discharge of his duties,

obligations and functions fora reasonable remuneration and such remuneration shall

form part of the liquidation cost.

 

·        Verification of Claims

                    i.           Liquidator shall verify the claims within 30 days from the last date of receipt of claims. He may admit or reject the claim,in whole or in part as per section 40 of the IBC 2016.

                  ii.           A claimant can appeal to the adjudicating authority against the decision of the Liquidator.

 

·        List of Stakeholders:

a)     Liquidator shall prepare the list of stakeholders within 45 days from the last date of

receipt of claims                                                                                                                      

b)     The liquidator shall prepare a list of stakeholders on the basis of proofs of claims submitted and accepted under these Regulations, with-

                                            I.           the amounts of claim admitted, if applicable,

                                          II.           the extent to which the debts or dues are secured or unsecured, if applicable,

                                        III.           the details of the stakeholders, and

                                       IV.           the proofs admitted or rejected in part, and theproofs wholly rejected.

 

 

·        Deposit money into Bank Account:

Liquidator shall open a bank account in the name of the corporate person followed by the words ‘in voluntary liquidation’, in a scheduled bank, for the receipt of all moneys due to the corporate person.

All payments out of the account by the liquidator above five thousand rupees shall be made by cheques drawn or online banking transactions against the bank account.

 

·        Distribution of Proceeds

The liquidator shall distribute the proceeds from realization within six months from the receipt of the amount to the stakeholders.

The liquidation costs shall be deducted before such distribution is made.

 

   vii.           Winding up of Affairs of the Company

 

·        Liquidator shall endeavor to wind up the proceedings of the Company with in a period of 1 year from the date of commencement of winding up proceedings.

·        In the event if voluntary liquidation continuing for a period of more the one year, than the liquidator shall:

Ø  Call the meeting of the contributory of such corporate person with in period of 15 days from the end of one year.

Ø  In such meeting liquidator shall present a status report showing the progress in the liquidation.

Ø  Such status report shall enclose an audited account of the voluntary liquidation, showing particulars about the receipt and payment of the liquidation from the date of the commencement of the liquidation proceeding.

Ø   

 viii.           Final Report

 

After completion of the liquidation proceeding, the liquidator shall prepare the final report consisting of:

Ø  An audited account of the voluntary liquidation

Ø  An Statement showing that:

                                            I.           The assets of the Company is being disposed off

                                          II.           The debts of the Company is being discharged to the satisfaction of the creditors

                                        III.           No litigation is pending against the Company,or the sufficient provisions has been made to meet the obligations arising fro many pending litigation.

Ø  Sales statement in respect of all assets, which may contains the following         

                                            I.           Realized value of assets

                                          II.           Cost of realizations of those assets

                                        III.           Mode of sale of assets

                                       IV.           Explanation for shortfall if any

                                         V.           Party to whom sale is made

                                       VI.           Other relevant details about the sale if any.

    ix.           Submission of Final Report/ Application with NCLT

 

Liquidator shall send final report by registered post or by electronic mode to:

                                I.           The contributory

                              II.           The Registrar and

                            III.           The Board

 

      x.           Application to NCLT

 

Where the affairs of the Company have been wound up, and its assets are disposed off completely, than the liquidator shall make an application to the NCLT for dissolution of Company.

Such application shall be filed in Form NCLT-1

    xi.           Order of NCLT

 

After receiving the application Tribunal will fix hearing of the petition, where Tribunal is satisfied with the application. It may pass an order that the corporate debtor shall be dissolved from the date of order.

 

   xii.           Intimation to ROC

Order of the Tribunal must be communicated to the Registrar of Companies with in a period of 14 days of the receipt of copy of such order, or with in the such time as may be fixed by the ROC.

 

Suspension of Liquidation process

·        Where the liquidator is of the opinion that the voluntary liquidation is being done to defraud a person, he shall make an application to the Adjudicatory Authority to suspend the process of voluntary liquidation and pass any such orders as it deems fit.

·        Where the liquidator is of the opinion that the corporate person will not be able to pay its debts in full from the proceeds ofassets to be sold in the voluntary liquidation, he shall make an application tothe Adjudicating Authority to suspend the process of voluntary liquidation and pass any such orders as it deems fit.

For any clarification please ask Mr. Hemant Paliwal, Insolvency Professional at : hemant@hpacs.com 

CS Kuldeep Tiwari
Assistant Company Secretary
HPACS Team