(Under the Insolvency and Bankruptcy Code, 2016)
Insolvency and Bankruptcy Code, 2016, governed the provisions of voluntary liquidation. Section 59 of the Insolvency and Bankruptcy Code, 2016 (‘IBC’) which is relating to Voluntary Liquidation of Corporate person was notified by Ministry of Corporate Affairs on 30th March, 2017 and Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017 (‘Voluntary Regulations’) which came into effect from 1st April 2017 was notified by Insolvency and Bankruptcy Board of India (IBBI) on 31st March 2017.
Voluntary Liquidation is an Independent process with no intervention of court unless liquidator do something so utterly unreasonable and absurd that no reasonable man would have done it, such as selling an asset of the company without taking into account the possibility that a third party might well have made a better offer than he to whom it was sold and any person aggrieved by such act or decision of the liquidator, apply to the court; and the court may confirm, reverse or modify the act or decision taken, and make such order in the case as it thinks just.
Circumstances which lead to voluntary liquidation:-
- Expiry of the period of company duration, if any, fixed by its articles or on the occurrence of any event in respect of which the articles provide that the company shall be dissolved and
- Special Resolution passed by the members of the company requiring company to be liquidated voluntarily.
Pre-Conditions to be fulfilled for initiation of Voluntary Liquidation under IBC are:-
- The corporate person must be solvent and
- The corporate person has not committed any default
Effects of Voluntary Liquidation on status of the company
In the case of a voluntary liquidation, the company shall, from the commencement of the voluntary liquidation, cease to carry on its business, except so far as may be required for the beneficial winding up of such business.
Provided that the corporate person shall continue to exist until it is dissolved.
Liquidation Commencement Date
As per Section 5(17) of the IBC, Liquidation commencement date means the date on which the proceedings for liquidation commence in accordance with section 33 or section 59, as the case may be. As stated under section 59 (5), voluntary liquidation shall be deemed to have commenced from the date of passing the shareholders’ resolution, subject to the creditor’s approval.
As per IBC, shareholders appoint insolvency professional to act as liquidator and fix the remuneration payable to him. In voluntary liquidation, there is no method or formula for computing the liquidator’s fees. Insolvency professional who proposed to be appointed as liquidator of the company shall meet the eligibility criteria as specified under Regulation 6 of the Voluntary Regulations.
The main eligibility criteria to be meet by the insolvency professional who proposed to act as liquidator is ‘independent criteria’ i.e. insolvency professional shall be independent of the corporate person.
Liquidator shall not continue to act as liquidator, if the insolvency professional entity of which he is a director or partner, or any other partner or director of such insolvency professional entity represents any other stakeholder in the same liquidation.
Role of Liquidator
- Once appointed, the liquidator has various responsibilities including:
- Carry on the business of the corporate debtor for its beneficial liquidation
- Realising the assets of the company and achieving the best possible price;
- Invite and settle claims of creditors and claimants;
- Institute or defend any suit, prosecution or other legal proceedings, civil or criminal, in the name of on behalf of the corporate debtor;
- Distribute the liquidation proceeds as per Section 53 of the IBC;
Period for completion of Voluntary liquidation:
The Liquidator shall try to complete the liquidation process of the corporate person within 12 months from the liquidation commencement date. In case the process continues beyond 12 months, the liquidation shall call the meeting(s) of contributories at specific intervals as provided under voluntary regulations.
Various Reports under Voluntary Liquidation
- Preliminary Report: Within 14 days from the liquidation commencement date, liquidator shall submit preliminary report to the corporate person which among other things provides details w.r.t. capital structure of the corporate person, estimates of assets and liabilities as on the liquidation commencement date based on the books of corporate person;
- Annual Status Report: When the liquidation process continues for more than 12 months, than the liquidator call the meeting of contributories and present annual status report to them which indicates the progress in liquidation;
- Final Report: On completion of liquidation process, liquidator prepare the final report, which shall be submitted to Registrar, Insolvency and Bankruptcy Board of India and Hon’ble National Company Law Tribunal; which among other things contains audited accounts of the liquidation since the liquidation commencement date; statement specifying the assets of the corporate person which has been disposed of etc.
Dissolution of Corporate Person
On affairs of the corporate persons being completely wound up, the liquidator shall make an application to the Hon’ble National Company Law Tribunal for dissolution of corporate persons. The Corporate persons shall be dissolved from the date of order and a copy of the same shall be forwarded to the authority within a period of fourteen days with which such corporate persons are registered.
This Article has been Compiled by Swati Garg (Senior Associate)
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