Voluntary Liquidation

Process of Voluntary Liquidation
Meaning
Company wants to undergo liquidation on its own terms; might be that there is no
reason to continue carrying on business or that it is not feasible to do so. Only corporate
entities who have not defaulted on any debt can undergo voluntary liquidation
Can be initiated by Creditor or Member; in former company must be insolvent per

majority of shareholders/members, in latter no such requirement.
Broad steps
1. Declaration
2. Resolution & approval by creditors if debt w/in 4 weeks of declaration
3. Public announcement for claims by stakeholders w/in 5 days of approval
4. Intimation to ROC & Board w/in 7 days of approval
5. Preliminary valuation report by liquidator & submission to company w/in 45
days of approval
6. Verification of claims w/in 30 days from last date of receipt of claims,
preparation of list of stakeholders w/in 45 days from last date of receipt of
claims
7. Bank AC opened with name of company, followed by ‘in voluntary liquidation’ in
scheduled bank
8. Proceeds from sale of assets recovery of debts etc. deposited into above AC
9. Distribution of proceeds to stakeholders w/in 6 months of receipt of amount
10. Liquidator submits final report to company, ROC & Board, and application to
NCLT for dissolution
11. Submission of NCLT order to concerned ROC w/in 14 days
Insolvency & Bankruptcy Code 2016
Section 2: Code shall apply in case of voluntary liquidation
Section 59: Initiation
59(1): Company that wishes to voluntarily liquidate itself and has not committed
default is free to initiate proceedings u/S 59.
59(2): Process additionally governed by IBBI Regulations 2017.
59(3)(a) & (b): Following documents must be submitted—
1. Declaration + Affidavit by majority of directors stating

a. Directors have conducted enquiry and company either has no debt or will be able
to repay existing debt via proceeds from liquidation
b. Liquidation is not being done to defraud a creditor or anyone else
2. Audited accounts of company + Report of Affairs of last 2 years (since incorporation
if company younger than 2 years)
3. Valuation Report if any by registered valuer
59(3)(c): The Company must also do the following within 4 weeks of submitting the
previous documents:
1. Pass Special Resolution in GM for purpose of initiating liquidation process and

appointing liquidator. (Once passed, this date is the commencement date for
liquidation process)
2. If company incorporated for certain duration mentioned in AOA and that has
expired/Articles require dissolution in certain conditions, resolution must be passed
to appoint liquidator and initiate liquidation process
3. If company has debts, creditors representing 2/3 value of total debt must approve
the resolution for liquidation within 7 days of its passing
59(4): Registrar of Companies & IBBI must be informed of Resolution w/in 7 days of its
passing or w/in 7 days of approval by creditors
59(5): liquidation will commence from date of resolution/approval if required
59(6): Following this, general process of liquidation will be applied, as provided u/S35-
53
59(7), (8) & (9): Post Liquidation:
1. Liquidator must also make application to adjudicating authority (here NCLT) to

dissolute company after affairs have been wound up and company has been
liquidated.
2. NCLT will upon receipt of this application pass an order that the company will be
dissolved from that date. Copy of this order will be sent to concerned ROC with
which company is registered w/in 14 days of passing.
IBBA Regulations 2017:
Liquidation must meet following conditions
1. Documents:
a. Declaration + Affidavit from majority of
i. Designated partners if LLP
ii. Individuals who are governing body (generally Board of Directors)
Stating
i. Directors have conducted enquiry and company either has no debt
or will be able to repay existing debt via proceeds from liquidation
ii. Declaration will mention/list each debt as on that date and state
they will be able to pay it with proceeds of liquidation
iii. Liquidation is not being done to defraud a creditor or anyone else
b. Audited accounts of company + Report of Affairs of last 2 years (since
incorporation if company younger than 2 years)
c. Valuation Report if any by registered valuer
2. Within 4 weeks of submitting documents:
a. Pass Resolution by special majority of partners/contributories purpose of
initiating liquidation process and appointing liquidator. (Once passed, this
date is the commencement date for liquidation process)
b. If company incorporated for certain duration mentioned in constitutional
documents and that has expired/same requires dissolution in certain
conditions, resolution must be passed to appoint liquidator and initiate
liquidation process
c. If company has debts, creditors representing 2/3 value of total debt must
approve the resolution for liquidation within 7 days of its passing
3. Company to notify ROC & Board of the Resolution w/in 7 days of its passing or w/in
7 days of approval by creditors
4. Liquidation will commence from date of resolution/approval if required
From date of commencement business of company must be stopped unless it is for

beneficial winding up
Company will continue to exist until dissolved u/S 59(8) via NCLT order
Appointment of Liquidator: must be an insolvency professional who is eligible, i.e.

satisfies the following:
1. He and every partner/director of the insolvency professional entity where he is

partner/director is independent of company
a. If any partner/director of the same insolvency professional entity represents
any other stakeholder in same liquidation
2. Should not be partner/director under restraint order of the Board
3. He should disclose pecuniary/personal relation w company/stakeholder to Board &
ROC upon becoming aware
Claims
1. Person claiming to be stakeholder must prove claim for debt/due w/interest as on

liquidation commencement date
2. Liquidator can ask evidence/clarification
3. If amount claimed is not precise, liquidator to give best estimate per available
information
4. Liquidator will verify claims w/in 30 days from last date of receipt of claims
5. Creditor may appeal against decision of liquidator to adjudicating authority.
6. Liquidator to provide reports & minutes available to stakeholder in electronic or
physical form after receiving application, cost of furnishing & undertaking from
stakeholder to maintain confidentiality and to not use for undue gain/loss
Sale: Liquidator can value and sell assets in mode specified by company complying with
required provisions.
Bank Account: Bank AC to be created with name of Company followed by ‘in

liquidation’ in any registered bank. Liquidator to pay all proceeds into this account
within 1 day of receipt of amount. Same can be used only as per Section 53(1). If
payment more then INR 5000 out of AC needs to be made it is to be done by
cheque/online banking transaction.
Distribution
1. Within 6 months of realisation distribution must be done

2. Liquidation costs to be deducted prior to distribution
3. If company approves, liquidator can distribute among stakeholders an asset that
cannot be readily/advantageously sold due to peculiarity/other circumstances
Completion
1. Liquidator to try and complete w/in 12 months of commencement date

2. If more than 12 months meeting with contributories w/in 15 days of end of 12
months & end of every 12 months post that till dissolution of company
3. Annual Status Report to be presented indicating progress w/ following:
a. Settlement of list of stakeholders
b. Details of assets to be sold
c. Distributions already made
d. Distribution of unsold assets
e. Developments in material litigation by/against company
f. Filing of & development in applications for avoidance of transactions
g. Audited accounts of litigation showing receipt & payment re: litigation
since commencement
Preservation: Liquidator to preserve physical/electronic copy of all records with

himself/information utility for at least 8 years post dissolution

Voluntary Liquidation

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Process of Voluntary Liquidation

Can be initiated by Creditor or Member; in former company must be insolvent per

Insolvency & Bankruptcy Code 2016

Section 2: Code shall apply in case of voluntary liquidation

Section 59: Initiation

59(2): Process additionally governed by IBBI Regulations 2017.

59(3)(a) & (b): Following documents must be submitted—

1. Declaration + Affidavit by majority of directors stating

1. Pass Special Resolution in GM for purpose of initiating liquidation process and

59(5): liquidation will commence from date of resolution/approval if required

59(7), (8) & (9): Post Liquidation:

1. Liquidator must also make application to adjudicating authority (here NCLT) to

IBBA Regulations 2017:

Liquidation must meet following conditions

From date of commencement business of company must be stopped unless it is for

Appointment of Liquidator: must be an insolvency professional who is eligible, i.e.

1. He and every partner/director of the insolvency professional entity where he is

1. Person claiming to be stakeholder must prove claim for debt/due w/interest as on

Bank Account: Bank AC to be created with name of Company followed by ‘in

1. Within 6 months of realisation distribution must be done

1. Liquidator to try and complete w/in 12 months of commencement date

Preservation: Liquidator to preserve physical/electronic copy of all records with

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