Company Dissolution or Winding up of a company means a procedure by which a corporate is dissolved or liquidated. With this process, the assets are disposed of to pay off the liabilities and the surplus. All the assets are distributed among shareholders/members in a proportion to their shareholding and the amount of debt with the company. Wind-up proceedings are governed under the norms of the Companies Act 2013 and also under the IBC 2016.

• Liquidation of firm under the IBC, 2016.
• Wind-up under the Companies Act, 2013 by NCLT.
• Removal/Striking off corporate’s Name from RoC.

In the following sections, we will understand the basic nuances of all these three methods of winding up a corporate and their associated business. 

Dissolution Under IBC 2016

A) Voluntary Liquidation of a Corporate (Section 59 of the Codes)

• A firm that intends to liquidate itself voluntarily to pay off its debt can initiate voluntary liquidation proceedings under the norms of the Insolvency and Bankruptcy Code 2016.
• The voluntary Liquidation procedure of a corporate person who is registered as a company, must meet the subsequent conditions:

1. A declaration signed by a majority of the administrators of the corporate verified through an affidavit that states-

• They have conducted a full investigation into the affairs of the corporate or corporate person and they have come to an opinion that either the corporate has no debt or that it will be ready to pay its debts completely from the proceeds obtained by liquidation of its assets during the voluntary liquidation of company.
• the corporate liquidation is not taking place with an intention to defraud any person.

2. A declaration under the sub-clause (a) must be accompanied with the subsequent documents—

• audited financial statements of the firm and record of business operations of the corporate from previous two years or since its incorporation, whichever is later;
• A report on the valuation of the assets of the corporate prepared by a registered valuer;

3. within four weeks of a declaration as per sub-clause (a), there must be—

• A special resolution from the members passed in a general meeting stating that the corporate needs to be liquidated and appointment of an insolvency professional is needed for the same; or
• A resolution from the members passed in a general meeting stating that the corporate needs to be liquidated voluntarily because the last due date of paying the dues has expired.  The Resolution should also state that debt resolution through asset resolution must take place via an insolvency professional.

In case of a corporate owing any debt to a person, its creditors who represent two-thirds of the value of the debt owed by the corporate must approve the resolution under sub-clause (c) within 7 days passing from the General Meeting.

4. The corporate must notify the Registrar of Companies (RoC) and the Board (IBBI)   regarding the resolution to liquidate the corporate within 7 days of spasming from the General meeting or the day after approval from the group of creditors (whichever is the case applicable).

5. Subject to approval by the creditors (if needed), the voluntary liquidation procedure related to a firm shall be deemed to have commenced from the date of passing of liquidation resolution.

• The norms of sections 35 to 53 of Chapter III and Chapter VII will apply to voluntary liquidation procedures for corporate people with such modifications as are necessary.
• Where the objectives of the corporate are completely unaffected and its assets are completely liquidated, the liquidator should make an application with the Adjudicating Authority to dissolve such a corporate.
• On receipt of an dissolution application by the liquidator, the Adjudicating Authority must pass an order that the debtor firm should be dissolved from the date of order.
• a replica of an order passed by the Adjudicating Authority should be forwarded within 14 days from the date of order to the authority with which the company is registered.

B) Liquidation Procedure if a Corporate has made default in debt payment

• The norms related to insolvency and liquidation of corporate debtors will be applicable only if the quantity of the debt is Rs. 1 Lakh or more. However, the Central Government has increased the minimum amount of default by notification to Rs. 1 Crore or more.
• Where any corporate debtor commits a default in debt payment, a creditor (financial or operational) or the debtor itself may apply to initiate Corporate Insolvency Resolution Process (CIRP) through an application to the Adjudicating Authority.
• A financial creditor either by himself or jointly with any other financial creditor may file an application under section 7 of the IBC. On the other hand, an operational creditor must first serve demand notice to debtor demanding repayment of the operational debt as per the agreement. This rule is as per section 8 and the Operational creditor has to file the application under section 9 of the IBC.
• The Corporate Insolvency Resolution Process (CIRP) should be completed within a period of 180 days from the date of acceptance of the application. Although, such period could be extended to a maximum of 90 days if a resolution for the same has been passed at a gathering of the committee of creditors (CoC) by seventy-five percent voting shares.
• On receiving the application, the adjudicating authority can take the following decision by an order- (a). declare a moratorium (b) make a public announcement initiatiating CIRP and submission of claims; (c). Announce the appointment of an Interim Resolution Professional (IRP).
• The Interim Resolution Professional (IRP) will manage the whole operation of the debtor company and exercise the rights of the Board/Partners. He will collect all claims received against the debtor company and constitute a CoC (Committee of Creditors).
• The CoC will comprise of all the financial creditors, who in their first meeting will come up with a resolution plan for the debt. The plan must keep the interest of all the involved parties intact.
• The Resolution Professional will submit the resolution plan from the CoC, which must be submitted within the prescribed timeline or else it maybe rejected by the Tribunal. In case the tribunal rejects the resolution plan due to any reason, it can order the liquidation of the corporate as per appropriate procedure laid down within the IBC to resolve the debts owed by the corporate debtor.

Removal/Striking off Company’s Name from RoC

1. A company can be dissolved by the Registrar of Company (RoC) on suo motu basis, if it has reasonable grounds to believe that:

• The company has not commenced its business within one year of obtaining its incorporation certificate.
• The company has not carried on any business or operation for the previous two fiscal years and has not made any application within that period to obtain the status of a dormant company under Section 455. In such a case, ROC sends a notice to the corporate and each one of its directors asking them the reason to stop the operation of the company and applying for dormant status. It will requesting them to send their answers alongside relevant documents within 30 days from the date of receiving the notice.
• If the subscribers to the memorandum haven’t paid the requisite subscription amount which they had undertaken for payment at the time of company incorporation and a declaration to the present effect has not been filed within 180 days of incorporation; 
• The company is found to be inoperative or dormant during the physical verification carried on at the registered office of the corporate by the RoC.

2. The dissolution can also be carried by the corporation itself by filing of an application with the RoC on all or any of the grounds mentioned in point 1. If a corporation opts to get rid of its name on suo motu basis (on any or all grounds mentioned in option 2), it can be done by following the steps summarized below-

a) A Company (after extinguishing all its pending liabilities) can pass a special resolution or take consent of seventy-five per cent of the members in paid-up share capital.

b) File an application to RoC for removal of its name by filing eForm STK-2 alongside the requisite fee of Rs. 5,000 and the document prescribed in the list of RoC.

• A No Objection Certificate (NOC) from a regulatory body under whose regulation the company was operating. For example, an NBFC has to file a NOC from the Reserve Bank of India. 
• Indemnity bondS duly notarized by every director of the firm in Form STK 3.
• A press release of accounts having assets and liabilities of the corporate accumulated 30 days before the date of application. The press release must be authorized by a Chartered Accountant.
• An affidavit in the format of the Form STK 4 by every director of the company;
• Copy of the special resolution certified by each administrator of the corporate with the consent of seventy-five percent of the members of the corporate. The certification must be given in terms of the paid-up share capital as on the date of application.
• A press release related to pending litigations, if any, involving the corporate.

On receipt of an application, the registrar will issue a public notice in Form STK-6 and place it on the MCA’s website and the company’s website. They should also publish it in the newspapers and also issue an Official Gazette for the knowledge of the public.

The Registrar of Companies (RoC) will simultaneously intimate the related regulatory authority under whose regulation the corporate was working. This includes income-tax authorities, RBI, SEBI, central excise authorities, IRDAI, and service-tax authorities.

Upon expiration of the time mentioned within the notice, if no objection is received on its part, the Registrar will cross off the name of the company from its record. It will publish notice of the same in the Official Gazette and post-publication of the notice, the corporate will remain dissolved.

Dissolution by the Tribunal under the Companies Act

Section 271 of the Companies Act has laid down the situations in which the firm can be dissolved by the tribunal:

• If the corporate itself has resolved through some special resolution that the corporate should be liquidated by the Tribunal.
• If the corporate has in any way acted against the interests of the sovereignty or integrity of India. Even if the corporate is found guilty of harming the safety of the State, public order, relations with foreign States, decency or morality of the society it can be dissolved through order of the Court.
• If an application made by the Registrar or any other government authorised person or institution releases notification against a company that has conducted fraudulent operations, then the Tribunal can order its dissolution. 
• If the corporate has made a default in filing of essential documents like its financial statements or annual returns to the RoC for preceding three fiscal years consecutively.
• If the Tribunal is of the opinion that it’s just and equitable that the corporate should be aroused

Section 272 of the Companies Act, clarifies the list of entities who are entitled to file a petition for the dissolution of a firm:

• The company promoters.
• Any contributor or contributories ( partly/fully paid-up stakeholder).
• All or any of the people laid out in clauses (a) and (b).
• The Registrar from RoC.
• A person authorised by the Central Government to carry out the job on their behalf.

How to File the Petition for Dissolution?

A Petition presented by the corporate shall be admitted and a press release is given to inform the public affairs. The Tribunal after careful examination of the petition, the court will decide the fate of the petition. Within 90 days from the date of presentation of the petition, the tribunal may pass any of the subsequent orders:

• Dismiss it, with or without any costs;
• Appoint a provisional liquidator for the corporate till the release of final order.
• Pass an order for the dissolution of the corporate with or without any costs;
• Any other order deemed fit.
• The Tribunal at the time of the passing of the order of liquidation, shall appoint a Liquidator or the Liquidator who will be amongst the Insolvency Professionals registered under the IBC 2016. 

So, that was everything to know about how a company gets dissolved in the Indian financial sector. Out of these ways, company dissolution through insolvency is considered the best and easiest to pay off the debt. The insolvency procedure must be taken care of under the supervision of a legal company. The IBC is also used to recover money from other debtors. Companies can opt for legal consultation before moving on with the process of insolvency for debt recovery. For a company being struck off from RoC but not dissolved, there are legal ways to revive the business. Find a good legal and financial consultant if you want to revive your business or just want to consult regarding insolvency procedure.

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Purpose For Voluntary Winding Up of A Company!

Opting for liquidation simply means that the company has outlived its purpose, which can be due to one of the many grounds, and is, therefore, being dissolved.

Companies Act, 2013 OR Insolvency and Bankruptcy Code, 2016: the Better Option!

Before the introduction of the Insolvency and Bankruptcy Code, 2016 (the ‘Code’), the winding up of a company took place solely under the Companies Act, 1956. The Act granted sanction to companies to wind up voluntarily and was effectively a less time-consuming process and attracted the least interference from the courts.

The Companies Act, 2013, does not provide a similar facility of voluntary winding up and therefore, one deduces that a company should opt for winding up under the Act, 2013, only when it wants the NCLT to supervise the proceedings.

On the other hand, the Insolvency and Bankruptcy Code, 2016, underwent sweeping changes in the procedure of winding up and this resulted in a less complex, cumbersome, and time-consuming process. Most companies going for voluntary winding up prefer liquidation of the company under the Code rather than the Act.

Criteria For Voluntary Winding Up (VWU):

The Code underwent a lot of transformation with the aim of simplifying and fast-tracking procedures of insolvency and bankruptcy. The most noteworthy and welcome change was the withdrawal of the inability to pay debts as a ground to wind up a company and also the omission of voluntary winding up. Instead, the former became ground for corporate insolvency resolution proceedings mentioned in Part II, Chapter II of the Code whereas the latter is covered in Section 59 of the Code.

Section 59 of the Code specifies that a company can pass a special resolution to liquidate voluntarily, if,

• it has not committed a default, or
• it has no intention to defraud anyone.

Process of VWU Of A Company

A company proposing to VWU is bound to follow the Code’s regulations that have been effective from April 1, 2017. The entire insolvency process places complete responsibility on the Resolution Professional, and later on the Liquidator. Hence, it is mandatory for such professionals to be well versed in the nitty-gritty of all the regulations.

1. Declaration of Solvency

Majority of the directors need to give a declaration expressing that the company does not owe any debts and if does, then that shall be completely paid by the sale of its assets.

• An affidavit to be submitted verifying the same by the majority of directors.
• Relevant documents shall be submitted along with it.
• All bank accounts to be closed and a liquidation account to be opened.

2. General Meeting Regarding VWU

• The shareholders of the company to pass a special resolution declaring the company to be liquidated.
• They will additionally appoint an insolvency professional to act as a liquidator within four weeks.
• If the company owes debts, creditors representing a 2/3rd value of the debts shall approve the resolution.

3. Intimating The Regulatory Authorities

Need to intimate all statutory departments about the commencement of the liquidation.

4. Public Announcements And Claims

The liquidator shall make a public announcement in one English & one regional newspaper within five days of his appointment.

5. Realization Of Assets & Payment Of Liabilities

Liquidator to sell off the assets and realize the money. The debts, if any, shall be cleared in priority as mentioned in the Code.

6. Final Report

On completion of the process, the liquidator shall prepare the final report on the guidelines mentioned in Rule 38 of the Code.

It shall be submitted to the Board and ROC, followed by an application in the NCLT regarding the dissolution of the company.

After verification, NCLT shall pass an order for dissolution of the company and the order needs to be filed with ROC within 14 days.

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The Central Government on 30th March 2017 notified Section 59 of the Insolvency and Bankruptcy Code 2016. The section 59 of the Code contains provisions for Voluntary Liquidation of the Corporate Persons. The provisions of section 59 actually came into effect from 1st April 2017. Thereafter on 31st March 2017, the Insolvency and Bankruptcy Board of India (IBBI) vide its notification notified the Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process)Regulations, 2017 which came into effect from 1st April 2017.

Prior to the above notifications, the voluntary liquidation process was governed by the provisions of the Companies Act, 1956. This was because of the fact that the provisions of the Companies Act, as well as the case, were not notified.

Further vide notification of the eleventh schedule of the IBC Code which got notified on 15th November 206, the provisions related to winding up got amended and the provisions related to voluntary winding up were omitted. Under the priory prevailing voluntary liquidation regime, the provisions of the companies act 1956 were applicable in relation to voluntary liquidation. The voluntary liquidation proceedings under the companies act 1956 were handled by the High Courts. At present, the proceedings are handled by the National Company law Tribunal (NCLT).

Current Arena

The present scenario after the applicability of the insolvency and bankruptcy code 2016 is that the cases pending before high court shall continue to be dealt with by the High Court even after the applicability of the code. All cases filed on and after 1st April 2017 shall be governed by the provisions of the insolvency and bankruptcy code and shall be dealt with by NCLT only. Currently, there exist two scenarios for voluntary liquidation:

1. Pending proceedings
2. Fresh proceedings

Pending Proceedings

Rule 4 of the Companies (Transfer of Pending proceedings) Rules, 2016 was notified on 7th December 2016 and it came into effect from 1st April 2017. The said rule prescribed that all applications or petitions related to voluntary liquidation of companies pending before high court prior to 1st April 2017 shall continue to be dealt with by the High Court in accordance with the provisions of Companies Act 1956.

Fresh Proceedings

As per Section 59 of the IBC , Section 431(1)(C) and 465 of the Companies Act 2013 along with Rule 4 , all fresh proceedings for voluntary liquidation that come up on or after 1st April 2017 shall be instituted before NCLT and be governed by the provisions of the Code and its Regulations.

Prerequisites for opting Voluntary Liquidation

The process for voluntary liquidation is simple and less detailed but it can only be adopted on satisfying the following prerequisites:

1. The company possesses no debts or it will be able to pay off its debts from the proceeds of the assets sold during voluntary Liquidation.
2. The company in not being liquidated with an intention to defraud any person.

Who can apply for Voluntary Liquidation?

A corporate person who intends to liquidate itself voluntarily provided it has not committed any defaults may initiate voluntary liquidation proceedings under the provisions of section 59 of the Insolvency and Bankruptcy Code 2016. Therefore, any company or LLP which has not defaulted in payment and possesses the capacity to repay its debts in full may apply for voluntary liquidation.

Pre Liquidation Compliances

The code contains a few compliances which are to be undertaken before the commencement of the voluntary liquidation process. The pre compliances are mandatory for commencing the liquidation process under the code. The pre-liquidation compliances are as follows:

1. Declaration of Solvency

The directors of the company in majority shall submit a declaration of solvency supported by an affidavit quoting that they have made detailed inquiry into the affairs of the company and have arrived at the opinion that the company has no debts or that the company will be able to pay off its debts from the liquidation estate in full. They shall also affirm that the company is not liquidated to defraud any person. The declaration provided by the directors shall contain the following as attachment:

• Audited financial statements along with records of business operations for the f previous two years or for the period since incorporation, whichever is later.
• A valuation report of the assets of the company, if any prepared by the registered valuer.

2. Members Approval

The members of the company shall within four weeks of filing declaration of solvency pass a special resolution in general meeting stating that the company be liquidated voluntarily. The members shall also appoint an insolvency professional to act as liquidator.

3. Creditors Approval

Where the company to be liquidated voluntarily owes a debt to any person , then in such a situation approval from creditors representing two third in value of the debt of the company shall be obtained within seven days of the passing of the special resolution by members.

4. Communication to ROC and IBBI

After obtaining approval from members and creditors for undergoing voluntary liquidation, the company shall intimate about the resolutions passed to ROC and IBBI within seven days of receiving approval from members and creditors.

When does Voluntary Liquidation Commence?

On receipt of the required approvals, the voluntary liquidation process shall be deemed to commence from the date on which special resolution is passed by the members along with the approval of creditors.

Effect of liquidation

From the liquidation commencement date, the corporate person shall cease to carry on the business. The corporate person shall carry business only for the beneficial winding up of the same. Even after the liquidation also, the corporate person shall continue to exist till it is finally dissolved as per the provisions of the code.

Voluntary Liquidation: The Process

The detailed process for voluntary liquidation as per the IBC code and its accompanying regulations are as follows:

1. Appointment of Liquidator

The members of the company shall after furnishing the declaration of solvency pass special resolution for the appointment of Insolvency Professional as liquidator to undertake the voluntary liquidation process. Only eligible insolvency professional shall be appointed as liquidator.

2. Public Announcement by Liquidator

Within five days of appointment, the liquidator shall make a public announcement of his appointment. Vide the public announcement; the liquidator shall request the stakeholders to submit their claims by the last date which shall be a term of thirty days to be counted from the liquidation commencement date. The public announcement shall be published in one English and one regional language newspaper which is in wide circulation at the place of registered office as well as on the corporate person’s website.

3. Submission of Proof of Claim by Creditors

Once the public announcement is made by the liquidator, all persons who claim to be stakeholders of the corporate person shall submit and prove their claim for debts within the provided time limit. The persons claiming to be the creditors or stakeholders of the corporate creditor are required to submit their proof of claim in the prescribed forms as mentioned in the code along with annexing the required documents.

4. Verification of Claims

The liquidator on receipt of claims shall verify the claims received within a period of thirty dates to be counted from the last date by which claims were required to be submitted by the creditors. The liquidator while verifying the received claims may either accept or reject the received claims. Also, the liquidator may ask for any other additional information from the claimants while verifying their claims.

5. Preparation of list of Stakeholders

After verifying the received claims, the liquidator shall prepare a list of stakeholders keeping into account the claims received and accepted by him. The list shall be prepared within forty-five days which shall be counted from the last date for receipt of the claim.

6. Realisation of Assets of Corporate Person

Once the list of stakeholders is finalized, the liquidator shall commence with realizing the assets of the corporate person. The liquidator shall himself or with the assistance of a registered valuer ascertain the value of the assets of the corporate debtor and thereafter initiate the sale of the assets in the prescribed mode and manner as approved by the corporate person. The liquidator shall also initiate a recovery process to realize all the assets and the dues of the corporate person within due time. If there remains any uncalled amount from any contributory then the liquidator shall call for the same also at the time of realization.

7. Opening of Separate Bank Account of Corporate Person

The liquidator shall along with realizing the assets of the corporate person open a separate bank account in a scheduled bank especially for the voluntary liquidation for receiving all money due to the corporate person. The bank account name shall contain “involuntary liquidation” as part of the name. The liquidator shall deposit all money including cheques and demand draft received by him as liquidator of the corporate person ion the bank account. All payments made by the liquidator above Rupees five thousand shall be made by cheque or through online banking transaction only.

8. Distribution of the Realized Proceeds

Once the assets of the corporate person are realized and the bank account is opened, the liquidator shall the distribute the proceeds obtained by realizing the assets of the corporate person within a period of six months to be counted from the date of receipt of the amount among the stakeholders.

Prior to distributing the proceeds, the liquidator shall deduct the liquidation cost incurred by him. During the distribution of assets if the liquidator comes across any asset that cannot be readily or advantageously sold due to its peculiar nature or any other condition then the liquidator can with the approval of corporate person distribute the same within the stakeholders.

9. Preparation of Final Report

After the distribution of the assets of the corporate person, the liquidator shall draft a final report of the liquidation process incorporating the audited accounts of the liquidation along with the report. Once the report is prepared by the liquidator, it shall be sent to the concerned registrar of companies, NCLT and to the Insolvency and bankruptcy board as well.

10. Application for Dissolution of Corporate Person

Once the affairs of the corporate person have been completely wound up and its assets have been realized and distributed among the stakeholders, the liquidator shall then file an application to the concerned adjudicating authority for dissolution of the corporate person.

The concerned adjudicating authority shall on receipt of the application filed by the liquidator shall pass a dissolution order in favour of the corporate person stating that the corporate person shall stand dissolved from the date of the order.

Duration of Voluntary Liquidation Process

The voluntary liquidation process shall be completed by the liquidator within a period of twelve months to be counted from the liquidation commencement date. The liquidator shall make his best endeavors to complete the liquidation process within the provided duration of twelve months.
If the liquidation process continues for more than twelve months, then in such a situation the liquidator shall convene a meeting of the contributors within a period of fifteen days and thereafter every twelve months till the dissolution of the corporate person.

Functions of the Liquidator in Voluntary Liquidation

The liquidator has a key role to play in the voluntary liquidation process. The entire voluntary liquidation process is controlled by the liquidator. Apart from being the supreme commander in the voluntary liquidation process, the liquidator is responsible for preparing the following documents:

1. Preliminary Report
2. Annual Status Report
3. Minutes of the consultations with stakeholders
4. Final Report
5. Books and registers

• Cash Book
• Ledgers
• Bank Ledger
• Register of fixed assets and inventories
• Securities and Investment register
• Register of book debts and outstanding debts
• Tenants register
• Suits register
• Decree register
• Register of claims and dividends
• Contributors ledger
• Distributions register
• Fee register
• Suspense register
• Documents register
• Books register
• Register of unclaimed dividends and undistributed properties

The liquidator shall also keep a record of all payments and expenses made by him along with their relevant proofs.

Therefore, the companies can close themselves under the Fast Track Exit (FTE) scheme as provided under the Companies Act 2013. The FTE scheme is available only to inoperative companies which have nill assets and liabilities. Now the IBC 2016 enables easy exit even for solvent companies which are active if they desire to do so voluntarily provided that they have cleared or have the capability to clear off their debts. Voluntary liquidation is a marvelous option for such companies.

Hope that this article was informative and stay connected with MUDS .

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