1. What Is Liquidation?

Liquidation refers to the formal process of closing a company by selling its assets to pay off liabilities. Once all obligations are settled, any remaining funds are distributed to shareholders, and the company ceases to exist.

Types of Liquidation

1. Voluntary Liquidation: Initiated by the company’s decision when it cannot pay its debts (creditors’ voluntary liquidation) or when it’s still solvent (members’ voluntary liquidation).
2. Compulsory Liquidation: Court-ordered liquidation, typically initiated by creditors or regulatory authorities.

Key Features of Liquidation

• Governed by the Insolvency and Bankruptcy Code (IBC), 2016 in India.
• Managed by a liquidator, who oversees asset sales and creditor payments.
• Aimed at maximizing returns for creditors while ensuring compliance with legal processes.

2. Distribution of Assets During Liquidation

The liquidation process prioritizes creditors based on their claims and legal standings. The IBC, 2016 specifies the following hierarchy:

Priority of Claims

1. Secured Creditors: Lenders with collateralized loans are paid first from the proceeds of the pledged assets.
2. Unsecured Creditors: Includes suppliers, employees, and other parties without collateralized claims.
3. Government Dues: Outstanding taxes, penalties, and other statutory dues are settled after creditors.
4. Equity Shareholders: Shareholders receive funds only if all prior obligations are met.

Steps in Distribution

1. Asset Valuation: Assets are appraised to determine their market value.
2. Asset Liquidation: Assets are sold to recover funds for debt repayment.
3. Debt Settlement: Creditors are paid according to the priority list.

3. Possible Consequences for Directors During Company Liquidation

Liquidation has far-reaching consequences for directors, particularly in cases involving insolvency. Their responsibilities and actions are scrutinized during this period.

Director Responsibilities

1. Ensuring Transparency: Directors must disclose financial information to the liquidator.
2. Ceasing Business Activities: Operations must halt to prevent additional liabilities.
3. Avoiding Fraudulent Transactions: Engaging in dubious practices during liquidation can lead to legal actions.

Legal Consequences

• Disqualification: Directors may face disqualification under Section 164 of the Companies Act, 2013, if found guilty of misconduct.
• Liability for Wrongful Trading: Directors can be held personally liable for debts incurred after insolvency is apparent.
• Fraudulent Preferences: Transactions favoring certain creditors over others can attract penalties.

Rights of Directors

While responsibilities increase, directors retain certain rights:

• To attend creditor meetings.
• To appeal liquidation decisions if deemed unjust.

4. Example of Liquidation

Understanding liquidation is easier with real-world scenarios. Here’s a simplified example:

Case: XYZ Industries

XYZ Industries, an electronics manufacturer, faced financial difficulties due to declining sales and increased competition. The company failed to meet its debt obligations, prompting creditors to file for liquidation under the IBC.

1. Trigger: Creditors initiated insolvency proceedings.
2. Liquidator Appointment: A liquidator was appointed by the National Company Law Tribunal (NCLT).
3. Asset Sale: The company’s assets, including machinery and inventory, were sold at auction.
4. Debt Settlement: Proceeds were distributed to secured and unsecured creditors based on priority.
5. Closure: Remaining funds were distributed among shareholders, and the company was officially dissolved.

Key Learnings:

• Liquidation is often the last resort.
• The process ensures creditors receive maximum recoveries.
• Legal compliance at every step is critical.

5. Liquidation: Important Points to Consider

Liquidation involves multiple stakeholders, each with distinct interests. Proper planning and professional advice can mitigate risks and improve outcomes.

Important Points for Companies

1. Timely Action: Delaying liquidation can lead to greater financial losses.
2. Accurate Records: Maintain up-to-date financial records to simplify the liquidation process.
3. Compliance: Adhere to the IBC and other applicable regulations.

Important Points for Creditors

1. Claim Submission: Creditors must submit claims promptly to be considered during the liquidation process.
2. Recovery Expectations: Understand recovery may be partial, depending on the asset base.

Important Points for Shareholders

1. Understand Priority: Shareholders are last in the payout hierarchy.
2. Engage Early: Actively participate in proceedings to ensure transparency.

6. Tax Implications and Financial Impact of Liquidation

Liquidation has significant tax and financial consequences, which vary based on the nature of the liquidation.

Tax Implications

• For Companies: Sale of assets may attract capital gains tax.
• For Creditors: Recovered amounts may be taxable as income.
• For Shareholders: Distributions may be subject to dividend tax.

Financial Impact

1. Credit Score Impact: A liquidated company’s directors and related entities may face a drop in creditworthiness.
2. Asset Depreciation: Assets sold during liquidation often fetch lower market values.
3. Market Reputation: The company’s reputation may be tarnished, affecting future ventures.

FAQs About Liquidation`

1. What is Liquidation?

Liquidation is the formal process of winding up a company’s operations by selling its assets to settle debts and obligations. Once the process is completed, the company ceases to exist.

2. What are the types of liquidation?

1. Voluntary Liquidation: Initiated by the company itself. It can be:
   • Members’ Voluntary Liquidation (MVL): For solvent companies.
   • Creditors’ Voluntary Liquidation (CVL): For insolvent companies.
2. Compulsory Liquidation: Initiated by creditors or regulators through a court order when a company fails to meet its obligations.

3. What triggers a liquidation process?

The following scenarios can trigger liquidation:

• Inability to pay debts (insolvency).
• Resolution by shareholders or creditors.
• Court orders based on creditor petitions or regulatory requirements.
• Non-compliance with legal or financial obligations.

4. What is the role of a liquidator?

A liquidator is an authorized professional who manages the liquidation process. Their responsibilities include:

• Assessing and valuing the company’s assets.
• Selling assets to recover funds.
• Settling creditor claims based on priority.
• Distributing remaining funds to shareholders.
• Ensuring compliance with legal requirements.

5. Who gets paid first during liquidation?

The Insolvency and Bankruptcy Code (IBC) outlines the priority of payments:

1. Secured creditors with collateralized loans.
2. Workmen’s dues and employee compensation.
3. Unsecured creditors, including suppliers and contractors.
4. Government dues, such as taxes and penalties.
5. Equity shareholders, if funds remain after all debts are cleared.

6. How is the liquidation process initiated?

1. Voluntary Liquidation:
   • The board of directors proposes liquidation.
   • Approval is obtained from shareholders and creditors.
   • A liquidator is appointed.
2. Compulsory Liquidation:
   • A petition is filed in court (usually by creditors).
   • The court appoints a liquidator and oversees the process.

7. How long does the liquidation process take?

The duration varies depending on the complexity of the case, the value of assets, and the number of creditors. On average:

• Voluntary liquidation: 6-12 months.
• Compulsory liquidation: 12-24 months or more.

8. What happens to employees during liquidation?

Employees are terminated when a company enters liquidation. However:

• Outstanding wages and benefits are prioritized during asset distribution.
• Workmen’s dues are given precedence over unsecured creditors.

9. Can a company recover after entering liquidation?

No, liquidation is the final step. Once the process is complete, the company ceases to exist. However, in some cases, parts of the business or assets may be sold to another entity, preserving some value.

10. What happens to directors during liquidation?

Directors face scrutiny during the liquidation process, particularly in cases of insolvency. They must:

• Provide accurate financial records to the liquidator.
• Cooperate fully during investigations.
• Avoid fraudulent practices or wrongful trading, as these can lead to personal liability.

11. What is wrongful trading, and how does it impact directors?

Wrongful trading occurs when directors allow a company to continue operating despite knowing it cannot pay its debts. Consequences include:

• Personal liability for the company’s debts incurred during the period of wrongful trading.
• Disqualification from holding director positions in the future.

12. What is the difference between insolvency and liquidation?

• Insolvency: The financial state where a company cannot pay its debts.
• Liquidation: The legal process of closing the company by selling its assets to pay creditors.

13. How are secured and unsecured creditors treated during liquidation?

• Secured Creditors: Paid first from the proceeds of the assets pledged as collateral.
• Unsecured Creditors: Paid after secured creditors and workmen’s dues. They often receive a lower percentage of their claims.

14. What is the role of NCLT in liquidation under IBC?

The National Company Law Tribunal (NCLT) oversees insolvency and liquidation cases in India. Its roles include:

• Approving or rejecting insolvency petitions.
• Appointing resolution professionals or liquidators.
• Ensuring adherence to the IBC framework.

15. How can creditors file claims during liquidation?

Creditors must submit proof of their claims to the liquidator. This includes:

• Invoices or contracts as evidence of debts.
• Supporting documents like payment records or legal agreements. The liquidator verifies claims before approving them for payment.

16. Can shareholders recover their investment during liquidation?

Shareholders are the last to receive funds during liquidation. They will recover their investment only if:

• All secured and unsecured creditors are paid in full.
• Any surplus funds remain after settling liabilities.

Conclusion

Liquidation, while often a challenging and complex process, serves as a mechanism to address insolvency and protect stakeholder interests. For companies, directors, creditors, and shareholders, understanding the nuances of liquidation is essential to navigate its financial, legal, and operational impacts. Professional guidance can play a pivotal role in ensuring a smooth process, maximizing recoveries, and minimizing liabilities.

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Following the above footsteps, the Insolvency and Bankruptcy Code, 2016 has two adjudicating authorities. The two adjudicating authorities enshrined under the Code are as follows:

1. National Company Law Tribunal (NCLT): For Corporate Persons
2. Debt Recovery Tribunal (DRT): For Individuals and Partnership Firms

The Insolvency and Bankruptcy recognized the NCLT as constituted under section 408 of the Companies Act 2013 to be the adjudicating authority for the purpose of insolvency and liquidation of corporate persons. The proposal for constituting the NCLT was made by the Eradi Committee.

Also the NCLT was designed to replace the jurisdiction of the erstwhile Company Law Board (CLB), the Board for Industrial and Financial Restructuring (BIFR) and the High Court in exercise of its jurisdiction as Company Court. Once NCLT got constituted and started functioning, the Bankruptcy Law Reforms Committee in its final report NCLT to be the appropriate adjudicating authority under the IBC for corporate persons.

NCLT was considered appropriate because under the Companies Act 2013, NCLT had jurisdiction over the winding up and liquidation process of companies. Similarly the Limited Liability Partnership Act, 2008 also conferred jurisdiction to NCLT for dissolution and winding up of Limited Liability Partnerships.

Role of NCLT under IBC

NCLT being the adjudicating authority for corporate persons under the IBC has been vested with various powers and roles. According to subsection (5) of section 60 of the Code, the NCLT shall have the power to entertain and dispose of the following:

• Any application or proceeding by or against the corporate debtor or corporate person ;
• Any claim made by or against the corporate debtor or corporate person including any claims filed by or against any subsidiaries situated in India and
• Any question of priorities or any question of law or facts arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under this code.

Jurisdiction of NCLT

The state of situation of registered office of the corporate entity shall be the deciding criterion for insolvency resolution and liquidation of corporate persons, corporate debtors and personal guarantors thereof.

On this note, the application for initiating the insolvency resolution process or liquidation of corporate debtors shall be filed before NCLT having jurisdiction over the place where the registered office of the corporate entity is situated.

The Section 63 of the code also states that the Civil Courts shall not have any authority to entertain any suit or proceedings in respect to any matter on which NCLT has power to entertain under the code.

Also the Section 9 of the Code of Civil Procedure, 1908 gives power to the courts to try all the suits of civil nature except suits from which such courts are expressly or impliedly barred.Therefore by being barred by section 63 of the code , Civil Courts shall not have jurisdiction over matters on which NCLT has jurisdiction.

The adjudicating authority for corporate persons shall be NCLT. The appeals if any against the order of NCLT shall be filed before NCLAT. Further any person aggrieved by the order of NCLAT may file an appeal to the Supreme Court. The appeal filed before Supreme Court shall be only on question of law arising out of order passed by order of NCLT or NCLAT.

1. NCLT

The adjudicating authority for corporate person as mentioned above shall be the NCLT having territorial jurisdiction over the place where the registered office of the corporate person is located. It is important to note that incase where a corporate insolvency resolution process or liquidation proceedings of a corporate debtor is pending before NCLT, then the application for insolvency resolution or bankruptcy of personal guarantor of such corporate debtor shall also be filed before the same NCLT as that of the corporate debtor.

If the insolvency process or bankruptcy proceedings of personal guarantor of the corporate debtor is appending before any court or tribunal then it shall in such a situation shall transferred to the same adjudicating authority which is dealing with the insolvency resolution process or liquidation proceedings of the corporate debtor.

2. NCLAT

Once the application under IBC is admitted by the NCLT from the corporate person then any person aggrieved by the order of NCLT may prefer an appeal before the NCLAT. Every appeal shall be filed before NCLAT within thirty days. An appeal can be filed beyond thirty days if NCLAT is satisfied that there was a sufficient cause for not being able to file within the thirty days duration , but then within fifteen days period after thirty days only.

3. Supreme Court

If a person is not satisfied and is aggrieved by the order of NCLAT then in such a case he can file an appeal to the Supreme Court. The application to be filed shall be based only on question of law that arouse out of the order only.

The application before Supreme Court shall be filed within forty-five days from the date of receipt of order of NCLAT. However, the Supreme Court may allow extension beyond forty-five days if it is satisfied that person was prevented by sufficient clause. The extension allowed shall be only fifteen days beyond the forty-five days duration.

Time Limit for Disposal of Appeal

The application shall be disposed off by NCLT or NCLAT within the period specified in the Code. However, if the application is not disposed off within the prescribed time limit, then the NCLT or NCLAT shall record the reason for delay in writing .

The President of NCLT or the Chairperson of NCLAT shall take the reason for delay into consideration and thereafter if required may extend the period prescribed in the act by another period not exceeding ten days.

Difference between Companies Act 2013 and the Code 2016

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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.

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We at MUDS on having a glance at chapter III derived the interpretation that liquidation process can be initiated only when the resolution plan as required to be submitted by the resolution professional is not received by the adjudicating authority or rejects the resolution plan due to non compliance of the specified requirements at any time before the expiry of maximum permitted period of corporate insolvency resolution process or fast track corporate insolvency resolution process.

The resolution professional appointed to conduct the corporate insolvency resolution process shall also act as liquidator for the corporate debtor. In order to avoid any ambiguity, the power and duties of the liquidator have been clearly stated in the chapter itself.

Initiation of Liquidation

In the situation where the adjudicating authority does not receive an approved resolution plan by the resolution professional before the expiry of insolvency resolution process period or the maximum permitted period for CIRP or fast track CIRP or the adjudicating authority rejects the received resolution plan due to non compliance of the specified requirements, then it may pass order for liquidation of corporate debtor along with issuing public announcement for the same.

The resolution professional can himself approach the adjudicating authority for seeking liquidation order against the corporate debtor on request of the committee of creditors at any time during the CIRP but before the confirmation of resolution plan.

Any person whose interest is significantly affected by the contravention of the corporate debtor can also make an application to adjudicating authority for seeking liquidation order against the concerned corporate debtor.
It is evident to note that once a liquidation order has been passed, there shall prevail a stay on all legal suits and proceedings by or against the corporate debtor.

Appointment of Liquidator

Once the order for liquidation is passed by the adjudicating authority, the resolution professional appointed for carrying out CIRP proceedings shall act as the liquidator also. Once the liquidator is appointed, the board of directors, KMP, and partners of the corporate debtor shall seize to have any control over the affairs of the business.

Replacement of Liquidator

The resolution professional who is acting as a liquidator can be replaced by an order passed by the adjudicating authority in the following cases:

1. In the cases where a resolution plan submitted by resolution is rejected due to failure to meet the specified requirements.
2. The replacement of resolution professional is recommended by the board to the adjudicating authority

The adjudicating authority would request the board to propose the name of insolvency professional who is replacing the existing liquidator. On receipt of the request from adjudicating authority, the board shall within 10 days propose the name of an insolvency professional who could replace the existing liquidator. The adjudicating authority shall thereafter appoint the proposed insolvency professional as the liquidator.

Liquidation estate

The liquidator after being appointed shall form a pool of the assets of the corporate debtor which will ultimately be used to settle the dues after liquidation to settle the claims. The pool of assets created out of the assets shall be called the liquidation estate. The liquidator shall hold this created pool in the capacity and position of a fiduciary for the benefits of the creditors. The provisions of the chapter clearly highlight the assets which shall be included and excluded in the liquidation estate.

Consolidation of Claims

After forming the liquidation estate, the liquidator shall receive and collate the claim from creditors within the duration of 30 days from the commencement of the liquidation process. Both the financial as well as the operational creditors would submit their claim to the liquidator as well as to the informational utility. Any creditor can withdraw his submitted claim within a period of 14 days, from the date of original submission of the claim.

Verification of Claims

The liquidator on receiving the claims from creditors shall verify them in the manner specified by the board. At the time of verifying the claims, the liquidator if feels that there is a requirement of additional documents from any creditor then the liquidator may ask the same from the concerned creditor.

Decision on the claim

After having verified the claims submitted by the creditors, the liquidator can either accept or reject the claim submitted in full or partly. At the time of rejecting the submitted claim, the liquidator shall give the reason for rejecting the submitted claim. After obtaining and verifying the received claims, the liquidator shall communicate his decision of accepting or rejecting the claim to the creditors and corporate debtor within 7 days of admission or rejection as is the case.

Determination of claim value

The liquidator after practicing the exhaustive decision-making exercise of admitting or rejecting the claim shall finally determine the final value of the claims admitted by it.

Appeal against the liquidator

Any creditor who feels offended by the decision of liquidator in terms of accepting or rejecting the claim submitted may appeal to the adjudicating authority with the time duration of 14 days. The time duration shall be counted from the date on which the decision of liquidator is received.

Role of secured creditors in the liquidation process

The secured creditors have a crucial role in the liquidation process. Accordingly, the secured creditor may relinquish his security interest to the liquidation estate and thereby receive the proceeds from the sale the concerned assets by the liquidator.

The secured creditor can also realize his security interest in the manner specified in the code. At the time of realizing the security interest, the concerned secured creditor shall intimate the same to the liquidator and accordingly identify the assets through which security interest shall be realized.

Distribution of assets on liquidation

Once the liquidation order is passed, the liquidation estate created shall be realized to pay off the creditors and settle the legal dues in relation to the liquidation process. The hierarchy for the distribution of assets on liquidation is as follows:

Dissolution of corporate Debtor

Once the assets of the corporate debtor have been liquidated, the liquidator shall finally make an application to adjudicating authority for the dissolution of the corporate debtor. The adjudicating authority on receipt of dissolution application order the dissolution of the corporate debtor from the very date on which it has passed the dissolution order in this regard.it shall be ensured that the dissolution order copy is filed with the concerned authority with which the corporate debtor is registered.

The above liquidation process will come into action only when the CIRP proceedings will fail to deliver the required output.

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INITIATION OF LIQUIDATION UNDER INSOLVENCY AND BANKRUPTCY CODE, 2016

The commencement of liquidation process takes place on account of:

When a liquidation order has been passed by Adjudicating Authority, no suit or other legal proceeding shall be instituted by or against the corporate debtor. The liquidator may institute suit or other legal proceeding prior to the approval of the Adjudicating Authority on behalf of the corporate debtor.

The order for liquidation under this section shall be deemed to be a notice of discharge to the officers, employees and workmen of the corporate debtor, except when the business of the corporate debtor is continued during the liquidation process by the liquidator.

APPOINTMENT OF LIQUIDATOR

When the Adjudicating Authority passed an order for liquidation of the corporate debtor under section 33, the Resolution Professional appointed under Corporate Insolvency Resolution Process shall act as the liquidator for the purposes of liquidation unless replaced by the Adjudicating Authority.

The Adjudicating Authority shall by order replace the Resolution Professional, if—

The Adjudicating Authority may direct the Board to propose the name of Insolvency Professional to be appointed as a liquidator.

The Board shall propose the name of another Insolvency Professional within ten days of the direction issued by the Adjudicating Authority.

The Adjudicating Authority on the proposal of the board shall by an order appoint Insolvency Professional as a liquidator.

On the appointment of a liquidator, all powers of the board of directors, key managerial personnel and the partners of the corporate debtor, shall cease to have effect and shall be vested in the liquidator.

VOLUNTARY LIQUIDATION OF CORPORATE PERSONS

A corporate person who has not committed any default may liquidate itself voluntarily and may initiate voluntary liquidation proceedings under section 59 of the Insolvency and Bankruptcy Code, 2016.

A company intending to voluntary liquidate itself shall meet the following conditions:—

Provided that if a company owes any debt to any person, creditors representing two thirds in value of the debt of the company shall approve the resolution passed by members within seven days of such resolution.

Where the affairs of the corporate person have been completely wound up, and its assets are completely liquidated, the liquidator shall make an application to the Adjudicating Authority for the dissolution of such corporate person.

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