Initiation of Voluntary Liquidation

In last post we discussed here basic provisions of Section 59 of the Insolvency and Bankruptcy Code, 2016 about voluntary liquidation.  As we mentioned, sub – section (3) to (5) of section 59 prescribes conditions related to corporate person registered as company. Similar conditions, in relation to voluntary liquidation of other corporate persons are prescribed in Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017. Here, we will discuss.

Voluntary liquidation of Company

Declaration

According to clause (a) sub – section (3) of section 59, for voluntary liquidation proceedings of a corporate person registered as a company a declaration from majority of the directors of the company is required.

The declaration shall be verified by an affidavit stating that—

(i) 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

(ii) the company is not being liquidated to defraud any person.

Documents with declaration

According to clause (b) sub – section (3) of section 59, the Declaration shall accompanied with following two documents –

(i) audited financial statements and record of business operations of the company for the previous two years or for the period since its incorporation, whichever is later; and

(ii) a report of the valuation of the assets of the company, if any prepared by a registered valuer.

Resolution after declaration

According to clause (c) of sub – section (3) of section 59, within four weeks of a declaration, there shall be—

(i) a special resolution of the members of the company in a general meeting requiring the company to be liquidated voluntarily and appointing an insolvency professional to act as the liquidator; or

(ii) a resolution of the members of the company in a general meeting requiring the company to be liquidated voluntarily as a result of expiry of the period of its duration, if any, fixed by its articles or on the occurrence of any event in respect of which the articles provide that the company shall be dissolved, as the case may be and appointing an insolvency professional to act as the liquidator.

If the company owes any debt to any person, creditors representing two thirds in value of the debt of the company shall approve the resolution passed under sub-clause (c) within seven days of such resolution.

Intimation to Registrar

According to sub – section (4) of section 59, the company shall notify the Registrar of Companies and the Board about the resolution to liquidate the company within seven days of such resolution or the subsequent approval by the creditors.

Commencement date

According to sub – section (5) of section 59, the voluntary liquidation proceedings in respect of a company shall be deemed to have commenced from the date of passing of the resolution under sub-clause (c) of sub-section (3).

Voluntary liquidation of other corporate persons

Declaration

According to clause (a) of sub – regulation (1) of Regulation 3 of Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017, for voluntary liquidation proceedings of a corporate person not registered as a company a declaration is required from majority of –

• the designated partners, if a corporate person is a limited liability partnership, or
• individuals constituting the governing body in case of other corporate persons.

The declaration shall be verified by an affidavit stating that—

(i) they have made a full inquiry into the affairs of the corporate person and they have formed an opinion that either the corporate person 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

(ii) the company is not being liquidated to defraud any person.

Documents with declaration

According to clause (b) of sub – regulation (1) of Regulation 3, the Declaration shall accompanied with following two documents –

(i) audited financial statements and record of business operations of the corporate person for the previous two years or for the period since its incorporation, whichever is later; and

(ii) a report of the valuation of the assets of the company, if any prepared by a registered valuer.

Resolution after declaration

According to clause (c) of sub – regulation (1) of Regulation 3, within four weeks of a declaration, there shall be—

(i) a resolution passed by special majority of the partners or contributors of the corporate person requiring it to be liquidated voluntarily and appointing an insolvency professional to act as the liquidator; or

(ii) a resolution of the partners or contributors of the corporate person requiring the corporate person to be liquidated voluntarily as a result of expiry of the period of its duration, if any, fixed by its constitutional document or on the occurrence of any event in respect of which the articles provide that the corporate person shall be dissolved, as the case may be and appointing an insolvency professional to act as the liquidator.

If the corporate person owes any debt to any person, creditors representing two thirds in value of the debt of the corporate person shall approve the resolution passed under sub-clause (c) within seven days of such resolution.

Intimation to Registrar

According to sub – regulation (3) of regulation 3, the corporate persons shall notify the Registrar and the Board about the resolution to liquidate the corporate person within seven days of such resolution or the subsequent approval by the creditors.

Commencement date

According to sub – regulation (4) of regulation 3, the liquidation proceedings in respect of a corporate person shall be deemed to have commenced from the date of passing of the resolution under sub-clause (c) of sub – regulation (1).

List of debt

According to sub – regulation (5) of regulation 3, the declaration shall list each debt of the corporate person or company as on that date and state that the corporate person will be able to pay all its debts in full from the proceeds of assets to be sold in the liquidation.

Effect of liquidation

According to regulation 4, the corporate person shall from the liquidation commencement date cease to carry on its business except as far as required for the beneficial winding up of its business. However, the corporate person shall continue to exist until it is dissolved under section 59(8).