Chapter V, Section 59 of the Insolvency and Bankruptcy Code, 2016 deals with voluntary liquidation of corporate persons. Section 59(1) of the Code explains that, a corporate person who is intending to liquidate it voluntarily and has not committed any default may initiate voluntary liquidation proceedings under the provisions of this chapter. Section 59(2) states that the voluntary liquidation in case of corporate person under sub-section (1) shall follow the procedural requirements and meet the conditions as may be prescribed by the Insolvency and Bankruptcy Board.
- Provisions required to be referred for Voluntary Winding Up of a company;
– Section 59 of Insolvency and Bankruptcy Code, 2016
– Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017
– Section 35 to 53 of the Insolvency and Bankruptcy Code, 2016 read with Insolvency and Bankruptcy (Liquidation Process) Regulations, 2016
– Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016 - The Regulatory authorities for dealing with Voluntary Winding Up of companies; The Insolvency and Bankruptcy Board of India, Registrar of Companies and the National Company Law Tribunal
- Procedure for Voluntary Liquidation of A Company;
- Declaration of Solvency;
Section 59(3)(a)(i) of the Insolvency and Bankruptcy Code, 2016 says that a declaration from majority of the Directors stating that they have made a full enquiry about the affairs of the company and they have formed the opinion that the company has no debt or in case it has debts it will be able to pay its debts completely from the value obtained from the assets to be sold in the voluntary liquidation. Section 59(3)(a)(ii) states that in case of voluntary winding up of a company, the company must state that it is not being liquidated to defraud any person. In this case, an affidavit verifying the above must be submitted from the majority of the directors.
The declaration under sub-section (a) must be accompanied with the following documents. They are specified under Section 59(3)(b) of the Code.
The documents are:
i) Audited financial statements and record of business operations of the company for previous two years or for a period since its incorporation, whichever is later.
ii) A report of valuation of the assets of the company, in case if it is prepared by a registered valuer.
After the declaration is filed, a board meeting shall be held to approve the declaration and proposal for winding up of the company. Then the company’s bank account shall be closed and a liquidation account will be opened. There is no provision under the Code for filing a declaration with the authority like the Companies Act, 1956 which gives the prescribed provision for this.
- General Meeting for initiating Voluntary Winding Up;
Section 59(3)(c) explains about the general meeting for initiating voluntary winding up of corporate persons. Within four weeks of the declaration under sub-section (a),
i) There shall be a special resolution by the members of the company in a general meeting requiring the company to be liquidated voluntarily and also it empowers the appointment of insolvency professional to act as a liquidator.
ii) There shall also be a resolution of the members of the company in a general meeting requiring that the company to be voluntarily liquidated as a result of expiry of the period of its duration if it is fixed by the articles of association of the company or on the occurrence of any event which the articles provide, that the company shall be dissolved and if it is dissolved, the company may appoint an insolvency professional to act as the liquidator.
It also provides that, if a company owes any debts to any person, creditors representing two-thirds in value of the debts of the company, then the company shall approve the resolution passed under sub-clause (c) and such approval must be made within seven days of such resolution.
- Intimation to other regulatory authorities;
Under sub-section (4), it is held that the company shall inform to the Registrar of Companies and the Board about the resolution under sub-section (3) to liquidate the company within seven days of such resolution or on the subsequent approval by the creditors. If the creditors approved under sub-section (3), then the voluntary liquidation shall be commenced from the date of passing of the resolution under sub-section (3)(c) which is explained under Section 59((5).
Application of Sections 35 to 53 of the Code:
Sub-section (6) of Section 59 says that, Sections 35 to 53 of Chapter III and VII shall apply to voluntary liquidation proceedings of corporate persons. Chapter III deals about liquidation process of a corporate person in case of incompletion of insolvency resolution process and the NCLT orders for liquidation of corporate persons. Chapter VII deals with offences and penalties. It is also provided that the liquidator in case of voluntary winding up of companies shall prepare a report on quarterly basis and submit the report to the Registrar of Companies or to the Board.
Sub-section (7) of Section 59 explains that where the affairs of the company have been completely wound up and the company’s assets are completely liquidated, then the liquidator shall make an application to the Adjudicating authority for the dissolution of such corporate person.
- Dissolution of Corporate debtor:
Under sub-section (8) of Section 59 deals about the dissolution of corporate debtor. This sub-section says that, the Adjudicating Authority, on the application filed by the liquidator under the sub-section (7), shall pass an order that the corporate debtor shall be dissolved from the date of the issuance of the order and the corporate debtor shall be dissolved accordingly. A copy of the order issued by the Adjudicating authority under this sub-section, within fourteen days from the date of such order, shall be forwarded to the authority with which the corporate person is registered.
- Public announcements and claims;
Regulation 14(1) of the Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017, deals about the public announcements and claims. The liquidator shall make a public announcement in Form A of Schedule within five days from his appointment about the liquidation of the company. Sub-regulation (2) states that the Public announcement shall call upon the stakeholders to submit their claims as on the liquidation commencement date and he must provide the last date for submission of claim, that is thirty days from the commencement of liquidation date. Sub-regulation (3) states that the announcement shall be published in the official Gazette, in one English and one regional language newspaper, on the website of the corporate person if it is available and on the website, if any, designated by the board for this purpose.
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