Voluntary Liquidation of Company and LLP under Insolvency and Bankruptcy Code, 2016

Voluntary Liquidation of Company & LLP

Voluntary Liquidation of a Company and LLP is governed by the provisions of Section 59 of Insolvency and Bankruptcy Code, 2016 (“IBC”). 

After the introduction of Insolvency and Bankruptcy Code, 2016 (“IBC”) the and relevant regulations issued under IBC, the provision relating to voluntary liquidation of a company under the Companies Act, 2013 in this regard have been repealed. 

Voluntary Liquidation under Insolvency and Bankruptcy Code, 2016 is applicable to ‘a corporate person’.

Who is a Corporate Person?

Under Insolvency and Bankruptcy Code, 2016, a Corporate Person can be liquidated. A "Corporate Person" means a Company registered under the Companies Act, 2013, a Limited Liability Partnership, registered under the Limited Liability Partnership Act, 2008, or any other person incorporated with limited liability under any law. However, any kind financial service providers are not covered under this definition. 

Conditions for Voluntary Liquidation 

A Limited Company or LLP that want to liquidate under voluntary liquidation process must fulfil certain conditions under Insolvency and Bankruptcy Code, 2016 and must follow the process as prescribed under IBBI (Voluntary Liquidation process) Regulations, 2017.

1. No Default of Debt

Corporate Person propose to be liquidated voluntarily liquidation process should not have committed any default. "Default" means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not repaid by the debtor or the corporate debtor, as the case may be.  Only those Companies and LLP’s can initiate voluntary liquidation proceedings under the provisions IBC.

2. Declaration of Solvency and Approval from Members and Creditors

Voluntary Liquidation proceedings of a Limited Company shall meet the following conditions also. Viz,

• A declaration from majority of the directors of the company stating that they have made a full inquiry into the affairs of the company and in their opinion 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. The declaration shall be accompanied with (a) Audited financial statements and record of business operations of the company for the previous two years or for the period since its incorporation and (b) a valuation report of the assets of the company, if any, by a Registered Valuer;
• A special resolution passed by the members in general meeting of the company for liquidating the company voluntarily and appointing an Insolvency Professional as the liquidator within four weeks of a declaration.
• In case the company owes any debt to any person, consent / approval from creditors representing two thirds in value of the debt within seven days of resolution by members.

3. Process - IBBI (Voluntary Liquidation Process) Regulations, 2017

The voluntary liquidation of a corporate person under IBC shall meet the conditions and procedural requirements specified by the Insolvency and Bankruptcy Board of India (IBBI) under IBBI (Voluntary Liquidation Process) Regulations, 2017.