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Voluntary Liquidation Services
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Voluntary Liquidation Services

Filing petition for voluntary liquidation with NCLT
Appearance and pleading by advocates
Realization and distribution of assets of a debtor(s)
Filling application to NCLT for dissolution of the corporate entity
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    The Process of Voluntary Winding up takes place when an organization becomes insolvent or is not able to clear its liabilities. To execute voluntary winding up of a private limited company, a winding up meeting is required to be called. In order to carry out the winding up process, a resolution is passed at this meeting.

    It is mandatory that either on the days fixed for General Meeting or on the very next day, the creditor’s winding up meeting should be held. The notice for this creditor’s meeting must be sent by post to each of the creditors along with the notice for the General Meeting. It is required to be published in the Official Gazette along with two newspapers which are popular in the district and are located where the registered office is.

    The list of creditors with the amount outstanding for each of them along with a Statement of Affairs should be processed well in advance and should be presented during the meeting. Once the resolution is passed during creditor’s meeting, within ten working days from the date when the resolution is passed, a copy of that resolution needs to be filed with the Register.

    In this creditor’s meeting, the creditors have to nominate a liquidator. The IBC Code 2016 should be kept in mind while nominating this liquidator as he would carry out all the functions of the winding up process of the company. The liquidator has to prepare a detailed list of assets and liabilities of the company. He shall also suggest a suitable process and timeline for liquidation.

    The liquidator shall value, recover, sell and realize all assets of the corporate person. He is free to open a bank account for receiving money from the sale of such assets. Within 6 months of receiving these proceeds, he has to carry out the disposal of such proceedings with the stakeholders.

    He is advised to keep an electronic copy of these reports. He has to save them for at least the next eight years from the date of dissolution of the corporate person. The liquidator ought to apply with NCLT for its dissolution along with final report once the winding up procedure ends.

    Priority List of Creditors

    The company’s that are filing for liquidation fall under two categories: 1) solvent and 2) insolvent. An insolvent company is the one which is at a shortfall of cash. Even after the liquidation of company assets, it is not possible to pay off its creditors. In such a case, there is a possibility of a conflict of interest amongst the creditors because of insufficient assets to pay all the creditors in full.

    Thus, the law tries to manage equality amongst the creditors by following a transparent process to liquidate the assets of the company to be distributed equally amongst the creditors as per the size of their individual claims.

    Updates in Winding Up Procedure under IBC Code 2016

    The Insolvency and Bankruptcy Code, 2016 unifies the insolvency laws for the entities under a single legislation. It also governs organizations, partnership firms, and limited liability partnership firms. The Insolvency and Bankruptcy Code, 2016 has entrusted the creditors with a time-bound resolution to their insolvency process. This Code empowers creditors by giving them the freedom to lend money to Indian entrepreneurs with ease.

    IBC Code 2016 or Insolvency and Bankruptcy Code 2016 must amend the various laws of Winding up of a company under the Companies Act, 2013. The definition of winding up as per IBC Code 2016, was formatted to be winding up or liquidation under the Insolvency and Bankruptcy Code 2016. All the laws of Winding up of a company under the Companies Act, 2013 section 270 that deals with the various modes of winding up were discarded and substituted by Winding up by Tribunal.

    Circumstances Under Which a Company Could Be Wound up by the Tribunal Are as Follows-

    When the winding up of the company is taking place through a special resolution.
    In case it is revealed that the company has acted against the security, integrity, and sovereignty of India’s friendly relations with foreign states.
    If the Tribunal finds that the company has enacted in an unlawful manner or fraudulently.
    If the people associated with the company, especially those involved in management or decision making are found to be guilty of fraud or misconduct.
    In case, the company is found to be a defaulter in filing its financial statements for preceding financial years with Company Registrar.
    In a situation wherein the Tribunal thinks for any reason that a company should be wound up.
    The Insolvency Professionals, have replaced section 275 of Winding up of a company under the Companies Act, 2013 for the appointment of Company Liquidators who are appointed and governed by the committee under the Insolvency and Bankruptcy Code 2016.
    A total omission in Insolvency and Bankruptcy Code 2016 of section 304 for Voluntary Winding Up of the companies which was previously under Winding up of a company under the Companies Act, 2013.

    The Pending Cases Were Passed on to NCLT as per the Resolution Passed on 7th Dec 2016, as per Below Criteria-

    It would be retained by the High Court if the Winding-up was happening under the supervision of the court.
    For all new cases from 1st April 2017, NCLT would be taking charge and all voluntary winding up cases filed up to 31st March 2017 would be retained by the High Court.
    When a company has to wind up due to its inability to pay, and the petition is served then the High Court will take care of it. In case of a petition, has not yet been served, in that case, it would fall under IBC 2016.
    When winding up is to be done by Court, and if the petition is served to the Respondent, then High Court will take care of it. However, if the petition has never been served to the Respondent, then it would be taken care of under Insolvency and Bankruptcy Code, 2016.
    Voluntary winding up of the procedures of a private limited company has been made part of Insolvency and Bankruptcy Code, 2016 in Chapter 5 of Part II. As per Section 59 of IBC Code 2016, a voluntary winding up can be initiated by a person from corporate who has not committed any default.
    Document Required
    Duties Of Liquidator
    Preliminary Report
    Annual Status Report
    Minutes of consultations with stakeholders
    Final Report

    As per Regulation 9 of Insolvency and Bankruptcy code 2016, the liquidator is required to submit the Preliminary Report to corporate person within forty-five days of commencement of liquidation process including details like the capital structure of corporate person, the estimates of his assets and liabilities as on the date of commencement of liquidation, whether if he wants to make any further inquiry about promotion, formation or failure of corporate person or conduct of his business thereof, and the proposed plan of action with timelines to carry out the liquidation process.

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      The Process Of Liquidation

      The Liquidation process can be initiated under the following circumstances as of section 33 of the Insolvency and Bankruptcy Code 2016.
      In a case when there is no resolution plan is proposed by the interim resolution professional as received from adjudicating authority on or before the expiry of the insolvency resolution period.
      When the resolution plan that was received by the interim resolution professional is non-compliant under section 31.
      When a request to liquidate the corporate debtor during the corporate insolvency resolution period is received from the committee of creditors and the same is communicated by the interim resolution professional to the adjudicating authority.
      When the corporate debtor flouts the resolution plan that is authorized by adjudicating authority and the person or creditor who is getting affected by this files an application to adjudicating authority for the liquidation of the corporate debtor or when the adjudicating authority finds the corporate debtor guilty.

      Insolvency Resolution Process Costs and Liquidation Cost include the following

      Workmen’s dues and debts due to the secured creditor who has relinquished security interest.
      Wages and dues of employees other than workmen.
      Financial debts owed to unsecured creditors.
      Payments to the Government and amount owed to a secured creditor who has realized security interest but the proceeds are insufficient to meet the debts
      Residuary debts and dues
      Preference shareholders
      Equity Shareholders or partners

      The Process Followed for Liquidation

      Once the liquidation process is begun as per the above-discussed criteria’s, in that case, the moratorium shall commence. After the moratorium, a public announcement shall be made about the corporate debtor beginning with the liquidation process.  

      A liquidator is to be appointed as per section 34 and the fee for his services to be paid to him for the proceedings is already decided and this fees for the liquidator is part of proceeds from liquidation estate. The resolution professional can also act as a liquidator if he is replaced by NCLT.

      Liquidation trust is formed as per section 36 of the Insolvency and Bankruptcy Code. This section is the core of the company liquidation process as it defines what assets of the corporate debtor which in turn shall form part of the liquidation estate, how the assets will be distributed by the liquidator, and who shall hold the estate as fiduciary for the benefit of all the creditors.  

      Then the claims from the creditors are processed. There are various sections which help in this process. Section 38 of the act outlines how to consolidate the claims from financial and operational creditors, section 39 defines how to verify claims. Section 40 defines the process of both acceptance, as well as the rejection of claims and section 42, defines how the applications against the liquidator decision shall be processed.


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      Frequently Asked Questions on Voluntary Liquidation Services
      What Does It Mean When A Company Goes Into Voluntary Liquidation?

      A. Once an organisation goes into liquidation, it is evident that its assets are sold to repay its creditors. In this case, the business shuts down, and its name is removed from the register at Companies House. There are two different types of the liquidation process, however, solvent and insolvent liquidation.   Solvent liquidation usually involves a director’s retirement or maybe the closure process is chosen when a business serves no further useful purpose. This is called a Members’ Voluntary Liquidation (MVL).   On the contrary, the insolvent liquidation takes place when a company cannot carry on for financial reasons. The motive of the insolvent liquidation process is to determine and specify a dividend for all classes of the creditor, but it is often the case that unsecured creditors receive little, if any, return.

      What Is The Difference Between A Creditor’s And Member’s Voluntary Liquidation?

      The major distinction between a Member’s Voluntary Liquidation process and Creditor’s Voluntary Liquidation is that the former is used by solvent organisations to dissolve their businesses and the later one is used to shut organisations that have been declared insolvent.

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