INTRODUCTION TO THE VOLUNTARY LIQUIDATION
Section 59 of the Insolvency and Bankruptcy code states about the voluntary liquidation of corporate person and the voluntary liquidation is in accordance to the rules of Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017. It has been seen that promoters are actively opting for voluntary liquidation for unactive or nonviable businesses. In such instances Board of Directors of the Company calls for the meeting and usually records that that the Company is not having any business operations for last many years and there is no operating revenue, and they proposed to file for voluntary liquidation and usually call for an Extra- Ordinary General Meeting to liquidate the Company. In a recent article of the economic times newspaper, it was reported that 2417 companies initiated voluntary liquidation and of which final reports have been submitted in 1867 cases.
LIQUIDATOR- THE TORCH BEARER OF VOLUNTARY LIQUIDATION
A Liquidator is appointer under Section 59(7) of the Insolvency & Bankruptcy Code, 2016 r/w Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017, for the purpose of liquidation of a corporate person. Section 59(4) of the Code read with Regulation 3(2) of Voluntary Liquidation Regulations, the company is required to notify the Registrar of Companies and the Board (IBBI) about the commencement of Voluntary Liquidation process and appointment of liquidator and such intimation is done via MGT 14.
Under Section 178 of the Income Tax Act, 1961, the Liquidator has to intimate the commencement of liquidation and appointment of liquidator to the Income Tax Department and as per the provisions of Section 88 of The CGST Act,2017, the liquidator has to inform the GST Department about the voluntary liquidation of the company as well as his appointment as liquidator of the company. The liquidator has an obligation to inform about the liquidation to other concern departments and also to the bankers of the company.
It is the liquidator who submits the application before the National Company law tribunal for the dissolution of the company along with liquidation and compliance report. Interestingly, it is the liquidator who is in the top of the priority list to distribute the proceeds of liquidated assets as defined under section 52 of the IBC, followed by the workmen and secured creditors.
VOLUNTARY LIQUIDATION VS INSOLVENCY RESOLUTION
Liquidation and insolvency resolution under the Bankruptcy Code operate in fundamentally different spheres, driven by entirely distinct objectives. Liquidation contemplates the dissolution of the corporate entity, involving the realisation of its assets and an orderly exit from the market. In contrast, insolvency resolution is a revival-oriented process, aimed at preserving the corporate debtor as a going concern through restructuring and reorganisation.
Put simply, insolvency resolution is akin to a patient undergoing medical treatment in a hospital with the intent of recovery and rehabilitation, whereas liquidation represents the inevitable outcome where survival is no longer possible and demise is certain. Section 59 of the IBC empowers a company that has attained its purposes or is operationally not viable to initiate voluntary liquidation by selling the assets and distribution of capital to the shareholders, however, insolvency proceedings are initiated in case of default. It is to be highlighted here that only a solvent company with no default can opt for voluntary liquidation. A solvent company is not expressly defined in a single, standalone provision, but its meaning is well-settled through the Insolvency and Bankruptcy Code, 2016 (IBC), the Companies Act, 2013. It means the company has no debt or will be able to pay its debts in full from the proceeds of assets to be sold in voluntary liquidation.
LIMITATION PERIOD TO CONCLUDE THE VOLUNTARY LIQUIDATION
Regulation 37(1), states that Liquidation process has to be completed within a period of two hundred and seventy days from the liquidation commencement date where the creditors have approved the resolution under and within period of ninety days from the liquidation commencement date in all other cases. The approval of creditors is not required where corporate person has no creditors and for such cases time period of liquidation process completion is ninety days.
PRACTICE APPROACH TO THE VOLUNTARY LIQUIDATION
Section 59(3) defines the most important condition for a voluntary liquidation and that is the declaration of solvency, wherein, a declaration from majority of the directors of the company verified by an affidavit stating that they have made a full inquiry into the affairs of the company and they have formed an opinion that either the company has no debt or that it will be able to pay its debts in full from the proceeds of assets to be sold in the voluntary liquidation; and the company is not being liquidated to defraud any person. Now this declaration shall be accompanied with the audited financial statements and record of business operations of the company for the previous two years or for the period since its incorporation, whichever is later and a report of the valuation of the assets of the company, if any prepared by a registered valuer. However, practically, it has seen that company going under voluntary liquidation has no asset, therefore, in such case no valuation report is required.
For voluntary liquidation a special resolution of the members of the company in a general meeting requiring the company to be liquidated voluntarily and appointing an insolvency professional to act as the liquidator must be passed within four weeks from the date of declaration of solvency and in case company owes any debt to any person, in such case creditors representing two-thirds in value of the debt of the company shall approve the resolution within seven days of such resolution.
Liquidator has to make a public announcement of voluntary liquidation as per Regulation 14 of the Voluntary Liquidation Regulations so as to invite the claim from any stakeholder and this claim has to be made within 30 days. This Public Announcement has to be simultaneously submitted to the Insolvency and Bankruptcy Board of India (hereinafter referred to as “the IBBI”) to place the same on its website. In terms of Regulation 30 of the Regulation, the Liquidator has to prepare a list of stakeholders based on claims submitted and accepted under the law. The liquidator has to submit a preliminary report before the members of the company in terms of the Regulation 9 of Voluntary Liquidation Regulations.
The Liquidator is required to open a bank account in the name of ‘COMPANY’S-IN VOLUNTARY LIQUIDATION’ with any Scheduled Bank for the receipts of all money due to Corporate Person in compliance of Regulations 34 of the Voluntary Liquidation Regulations. In compliance of Regulation 35 of the Voluntary Liquidation Regulations, 2017 and Section 53 of the Code, the balance available in the Bank Account has to be first utilized for the payment of liquidation cost and remaining balance is to be distributed among the stakeholders.
The liquidator has to submit before the tribunal along with dissolution application the Final Report dated containing the details as required under Regulation 38 of the Voluntary Liquidation Regulations, along with Auditor’s Certificate and the copy of the Final Report is to submitted to the Registrar of Companies in Form GNL-2 and is also required to be sent to the IBBI.
ABOUT THE REPORTS
In a voluntary liquidation under the Insolvency and Bankruptcy Code, 2016 read with the IBBI (Voluntary Liquidation Process) Regulations, 2017, the liquidator is required to prepare two key reports, namely the preliminary report and the final report, each serving a distinct statutory purpose. The preliminary report, prepared within forty-five days of the liquidation commencement date, sets out the liquidator’s initial assessment of the corporate person, including its capital structure, estimated assets and liabilities, the proposed plan and timelines for realisation and distribution of assets, and the expected costs and duration of the liquidation process.
Upon completion of the liquidation and distribution of proceeds in accordance with law, the liquidator prepares the final report, which contains the audited accounts of the liquidation, details of asset realisation and stakeholder distribution, confirmation of compliance with the statutory framework, and particulars of any unclaimed or undistributed amounts transferred to the designated account. The final report is submitted to the Adjudicating Authority and forms the basis for seeking an order of dissolution of the corporate person.
THE DISSOLUTION
The Adjudicating Authority after considering that whether voluntary liquidation has been done as per law, approves the liquidation in exercise of power conferred to it under Section 59(8) of the Insolvency and Bankruptcy Code, 2016, and orders that company shall stand dissolved with effect from the date of pronouncement of the order. NCLT, discharges the Voluntary Liquidator of its duties and obligations as a Voluntary Liquidator and directs the Voluntary liquidator to preserve a physical or electronic copy of the reports, registers and books of accounts referred to in Regulation 8 and Regulation 10 of the Voluntary Liquidation Regulations for at least 8 years as per Regulation 41 of the Voluntary Liquidation Regulations either with himself or with an information utility.
-Dixit Mehta, Partner, Ductus Legal
DUCTUS EDGE 