Q.What is meant by voluntary liquidation of a company under the Insolvency and Bankruptcy Code, 2016? State the conditions to be satisfied before it can be initiated.

Voluntary liquidation under Section 59 of the IBC lets a solvent, non-defaulting company liquidate itself, after a declaration of solvency and approval of its members (and creditors, if it owes debts).

Voluntary liquidation is the route by which a company that is fully solvent — able to pay off all its debts — chooses, of its own accord, to wind itself up and cease to exist, rather than being compelled to do so by the Tribunal. Since 2016, this entire subject is governed by Section 59 of the Insolvency and Bankruptcy Code, 2016, along with the IBBI (Voluntary Liquidation Process) Regulations, 2017.

Who may use this route. Only a corporate person that has not committed any default may initiate voluntary liquidation — the process is meant for companies that are winding down by choice (for instance, because their business purpose is complete, or as part of a group restructuring), not for companies in financial distress.

Conditions to be satisfied before initiation.

1. Declaration of solvency. A majority of the company's directors must make a declaration, verified by an affidavit, stating that (a) the company has no debt, or will be able to pay its debts in full from the proceeds of assets to be sold in the liquidation, within the period stated in the declaration (not exceeding the period prescribed), and (b) the company is not being liquidated to defraud any person.
2. Supporting documents. This declaration must be accompanied by the company's audited financial statements and a record of its business operations for the previous two years (or since incorporation, if that is shorter), and, where available, a report on the valuation of its assets.
3. Members' resolution. Within four weeks of the declaration, the members must, by a special resolution passed at a general meeting, resolve that the company be liquidated voluntarily and appoint an insolvency professional as liquidator. …

Students sometimes forget the creditor-approval requirement, wrongly assuming that voluntary liquidation is purely a members'-only decis …