Voluntary Liquidation of Corporate Persons [ Section 59 ] - Insolvency Resolution And Liquidation For Corporate Persons - IBC

Voluntary Liquidation of Corporate Persons Introduction The winding-up process by creditors and the voluntary winding up by members of a company have been shifted from the Companies Act, 1956, and the Companies Act, 2013, to the IBC, and these are regarded as Liquidation Process and Voluntary Liquidation Process under it. Section 255 of the IBC, notified with effect from November 15, 2016, amended the Companies Act, 2013, in accordance with Schedule XI of the IBC, which now defines the term winding up. A new section was added to the Companies Act, 2013, namely section 2(94A), which defines the expression winding up as winding up under this Act or liquidation under the IBC. It is also relevant that the enactment of the IBC triggered the removal of provisions of voluntary winding up and winding up on the grounds of inability to pay debts from the Companies Act, 2013. The proceedings relating to these are now under the ambit of the IBC. Liquidation in cases of default in payment or repayment of any debt is not directly possible. For such entities, the emphasis is on resolution, and if the resolution process does not result in an approved resolution plan, a liquidation order is passed by the Adjudicating Authority under section 33 of the IBC. As opposed to this, in a case of no default, or in other words, in case there is no insolvency, a corporate person can initiate voluntary liquidation directly under section 59 of the IBC. The IBC sets out a clear procedure for the voluntary liquidation of a corporate person. Section 59(1) of the IBC states that a corporate person who intends to liquidate voluntarily and has not committed any default, may initiate voluntary liquidation proceedings under the provisions of Chapter V of the IBC. Section 59(2) states that voluntary liquidation in the case of a corporate person under sub-section (1) shall follow the procedural requirements and meet the conditions as may be prescribed by IBBI. The IBBI (Voluntary Liquidation Process) Regulations, 2017 (Voluntary Liquidation Regulations), details the process to be followed in the voluntary liquidation of corporate persons. There are seven chapters in these regulations, detailing the process from the commencement of liquidation to the distribution of liquidation proceeds. Voluntary Liquidation of corporate persons [ Section 59 of the IBC, 2016 ] Person who make voluntary Liquidation Proceeding [ Section 59(1) of the IBC, 2016 ] A corporate person who intends to liquidate itself voluntarily and has not committed any default may initiate voluntary liquidation proceedings under the provisions of this Chapter. Requirements for voluntary liquidation to be specified by the [ Section 59(2) of the IBC, 2016 ] The voluntary liquidation of a corporate person under section 59(1) shall meet such conditions and procedural requirements as may be specified by the Board. Conditions of initiation of voluntary liquidation proceedings [ Section 59(3) of the IBC, 2016 Read with Regulation 5 of IBBI (Voluntary Liquidation Process) Regulations, 2017 and Rule 8 of Insolvency and Bankruptcy (Insolvency and Liquidation Proceedings of Financial Service Providers and Application to Adjudicating Authority) Rules, 2019 ] Without prejudice to section 59(2), voluntary liquidation proceedings of a corporate person registered as a company shall meet the following conditions, namely:- (a) a declaration from majority of the directors of the company verified by an affidavit stating that- (i) 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 (ii) the company is not being liquidated to defraud any person; (b) the declaration under sub-clause (a) shall be accompanied with the following documents, namely:- (i) 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; (ii) a report of the valuation of the assets of the company, if any prepared by a registered valuer; (c) within four weeks of a declaration under sub-clause (a), there shall be- (i) 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; or (ii) a resolution of the members of the company in a general meeting requiring the company to be liquidated voluntarily as a result of expiry of the period of its 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, as the case may be and appointing an insolvency professional to act as the liquidator: Provided that the company owes any debt to any person, creditors representing two-thirds in value of the debt of the company shall approve the resolution passed under sub-clause (c) within seven days of such resolution. Notification to Registrar of company and the Board [ Section 59(4) of the IBC, 2016 ] The company shall notify 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 the subsequent approval by the creditors, as the case may be. Commencement of liquidation proceeding [ Section 59(5) of the IBC, 2016 Read with Regulation 3 of IBBI (Voluntary Liquidation Process) Regulation, 2017] Subject to approval of the creditors under sub-section (3), the voluntary liquidation proceedings in respect of a company shall be deemed to have commenced from the date of passing of the resolution under sub-clause (c) section 59(3). Application of provisions of this Code [ Section 59(6) of the IBC, 2016 ] The provisions of sections 35 to 53 of Chapter III and Chapter VII shall apply to voluntary liquidation proceedings for corporate persons with such modifications as may be necessary. Application to adjudicating authority on complete wound up of the corporate person [ Section 59(7) of the IBC, 2016 ] Where the affairs of the corporate person have been completely wound up, and its assets completely liquidated, the liquidator shall make an application to the Adjudicating Authority for the dissolution of such corporate person. Passing of an order of dissolution [ Section 59(8) of the IBC, 2016 Read with Regulation 39 of IBBI (Voluntary Liquidation Process) Regulation, 2017] The Adjudicating Authority shall on an application filed by the liquidator under sub-section (7), pass an order that the corporate debtor shall be dissolved from the date of that order and the corporate debtor shall be dissolved accordingly. Forward of copy of order [ Section 59(9) of the IBC, 2016 ] A copy of an order under section 59(8) shall within 14 days from the date of such order , be forwarded to the authority with which the corporate person is registered. Preservation of Records [ Regulation 41 of IBBI (Voluntary Liquidation Process) Regulations, 2017 ] The copy of the reports and books of account (physical or electronic) referred to Regulation 8 and Regulation 10 of IBBI (Voluntary Liquidation Process) Regulations, 2017 shall be preserved for at least 8 years after dissolution either with himself or with an information utility. Forms Under Insolvency And Bankruptcy Board Of India (Voluntary Liquidation Process) Regulations 2017 a) Public announcement [ Regulation 14 ] - Form A of Schedule I b) Proof of claim by operational creditors except workmen and employees [ Regulation 16 ] - Form B of Schedule I c) Proof of claim by financial creditors [ Regulation 17 ] - Form C of Schedule I d) Proof of claim by workman or employee [ Regulation 18(1) ] - Form D of Schedule I e) Proof of claim by authorised representative of workmen or employee [ Regulation 18(2) ] - Form E of Schedule I f) Proof of claim by other stakeholders [ Regulation 19 ] - Form F of Schedule I