Purpose For Voluntary Winding Up of A Company!
Opting for liquidation simply means that the company has outlived its purpose, that 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.