Voluntary Liquidation under the Insolvency and Bankruptcy Code, 2016

Where a company is solvent — that is, it is fully able to pay off all its debts — but its members nevertheless decide that it should be wound up (for example, because its business purpose is over, or a group of companies is being restructured), the company can choose to liquidate itself voluntarily. This route is today governed entirely by Section 59 of the Insolvency and Bankruptcy Code, 2016, read with the IBBI (Voluntary Liquidation Process) Regulations, 2017 — not by the Companies Act, 2013.

Conditions to be satisfied. A corporate person may initiate voluntary liquidation only if it has not committed any default, and the process must satisfy, broadly, the following conditions:

1. A declaration of solvency, made by a majority of the company's directors and verified by an affidavit, stating that (a) the company has no debt, or that it will be able to pay its debts in full out of the proceeds of the assets to be sold in the voluntary liquidation, and (b) the company is not being liquidated to defraud any person.
2. 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 shorter), along with a valuation report of its assets, wherever such a report is prepared.
3. Within four weeks of the declaration, the members must, by a special resolution in a general meeting, resolve that the company be liquidated voluntarily and appoint an insolvency professional to act as the liquidator.
4. If the company owes any debt to any person, creditors representing two-thirds in value of the debt must approve this resolution within seven days.

The voluntary liquidation proceedings are treated as having commenced from the date the members pass this resolution. The company must then notify the Registrar of Companies and the Insolvency and Bankruptcy Board of India (IBBI) about the resolution, and a public announcement is made calling upon stakeholders to submit their claims.

Conduct of the process. The appointed liquidator takes control of the company's assets (its "liquidation estate"), verifies claims, realises the assets, and distributes the proceeds among stakeholders in the order of priority discussed later in this chapter. Periodic reports (a preliminary report, progress reports, and eventually a final report) are filed with the Registrar and the IBBI so that the process remains transparent and time-bound. …