Voluntary Winding-Up of Company & LLP

Voluntary Liquidation is the process of liquidating the company or LLP with the approval of its members. A company usually goes for a voluntary liquidation when its members decide not to continue its business operations. The main objective is to discontinue the operations and distribute its assets while also paying its debts.

Voluntary winding up is governed by insolvency and Bankruptcy Code (IBC), 2016

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Voluntary Winding-Up of Company & LLP

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Voluntary Winding-Up of Company


Voluntary Liquidation under Insolvency and Bankruptcy Code (IBC), 2016 

Voluntary Liquidation or Voluntary Winding up of a company in  India is administered under Insolvency and Bankruptcy Code, 2016 is applicable to ‘a corporate person’.

A "Corporate Person" means a company registered under the Companies Act, 2013 or 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.

Voluntary winding up of a company or Voluntary Liquidation of a Company and LLP is governed by the provisions of Section 59 of Insolvency and Bankruptcy Code, 2016 (“IBC”) read with Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017.

Conditions to start Voluntary Liquidation under IBC

A Limited liability  company or a 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. Solvency of Entity

Corporate Person which proposes to be liquidating under voluntarily liquidation process should not have committed any default.

2. No Default of Debt

"Default" means non-payment of debt when the whole or any part or instalment of the amount of debt has become due and payable and is not repaid by the corporate debtor. It includes a default of financial debt not only to the applicant financial creditor, but also to any other financial creditor of the corporate debtor.

Hence, only those Companies and LLP’s which has not defaulted can initiate voluntary liquidation proceedings under the provisions IBC.

Note: This resolution shall be also approved by the creditors in case company owes any debt to them.

Voluntary Liquidation of Company – Process

Voluntary Liquidation under Insolvency and Bankruptcy Code, 2016 is a systematic process strictly controlled and and administrated by IBBI and National Company Law Tribunal (NCLT).

Process of Voluntary Winding-Up (Voluntary Liquidation)


Step 1: Convene Meeting of Directors / Designated Partners

Step 2: Declaration of Solvency by Board / Designated Partners

Step 3: Convene General Meeting of Shareholders / Partner

Step 4: Appointment of Insolvency Professional as Liquidator

Step 5: Filings with Registrar of Companies and IBBI

Step 6: Filings with Registrar of Companies and IBBI

Step 7: Public Announcement by Liquidator

Step 8: Preliminary Report by Liquidator

Step 9: Opening of Bank Account for Liquidation purpose

Step 10: No-Objection from Tax Authorities

Step 11: Realization of Assets

Step 12: Distribution of Proceeds to Stakeholders

Step 13: Completion of Liquidation

Step 14: Annual Report – (if Liquidation extended beyond 12 months)

Step 15: Final Report by Liquidator

Step 16: Application to NCLT

Step 18: Filing of by NCLT order with IBBI & Registrar of Companies

Step 19: Preservation of records by Liquidator

Requirements


Solvency of Entity

Company / LLP should be solvent and it will be able to pay its debts in full from the proceeds of assets to be sold in the voluntary liquidation.

No Default by Entity

Company / LLP should not have committed any default of repayment of debt.

Appointment of Insolvency Professional (IP)

Company / LLP should appoint an Insolvency Professional (IP) as Liquidator to carry the Liquidation process.

Not to defraud any one

The Company / LLP should not be liquidated to defraud any person.

Documents Required


  • Resolutions by Meeting of Directors / Designated Partners

  • Declaration of Solvency by Board / Designated Partners

  • Resolutions by General Meeting of Shareholders / Partner

  • Consent from Insolvency Professional as Liquidator

  • Letter of Appointment of Insolvency Professional as Liquidator

  • Form MGT-14 / GNL-2 Filings with Registrar of Companies and IBBI

  • Public Announcement by Liquidator in Newspapers and IBBI Website

  • Preliminary Report by Liquidator

  • Bank Account opening by Liquidator

  • Communications to Regulatory Authorities

  • No-Objection from Tax Authorities

  • Auctioning of Assets, if any

  • Annual Report by Liquidator

  • Final Report by Liquidator

  • Application to NCLT with copies of Complete documents

  • Order From NCLT

  • Filing of by NCLT order with IBBI & Registrar of Companies

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  • Submit your Query to CompaniesInn for a Free Consultation

  • Fix Meeting with Insolvency Professionals for Preliminary Review

  • Get the Fee Quotes from Insolvency Professionals

  • Proceed with Voluntary Liquidation under Insolvency and Bankruptcy Code, 2016

FAQ

Frequently Asked Questions on Voluntary Winding-Up of Company & LLP

Who can opt for voluntary winding up under IBC?

A Limited Company or LLP fulfils the required conditions can be wound up by voluntary liquidation process under Insolvency and Bankruptcy Code, 2016

What are the primary Conditions to start voluntary liquidation under IBC

The corporate person should be solvent and 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 should not have committed any default of repayment of debt.

Whether appointment of Insolvency Professional (IP) is Mandatory?

Yes. The Corporate person should appoint an Insolvency Professional (IP) as Liquidator to carry the Liquidation process.

Who can be Appointed as Liquidator?

A person who has been registered with with Insolvency and Bankruptcy Board of India (IBBI) as an Insolvency Professional (IP) can only be Appointed as Liquidator

What is the timeline for completion of voluntary liquidation under IBC?

Insolvency and Bankruptcy Board of India (IBBI) prescribes 12 months’ timelines for completion of the process. Ideally the voluntary liquidation should be completed within 12 months time. However, it may be extended beyond 12 months due to unavoidable circumstances and the necessary steps such as conducting contributories meeting shall be required to be followed in such cases.

Is there separate members’ and creditor’s voluntary winding up under IBC?

No, there is no separate members’ and creditor’s voluntary winding up under IBC. Voluntary winding up has to be approved first by Members and by creditors, if the Company or LLP has Creditors

When the liquidation is deemed to be commenced?

The voluntary liquidation proceedings are deemed to commenced from the date of passing of the resolution by the members subject to creditor’s approval.

Who is the Adjudicating Authority under IBC?

Adjudicating Authority under IBC shall be National Company Law Tribunal constituted under section 408 of the Companies Act, 2013.

How long should the liquidator preserve the records of the voluntary liquidation?

The liquidation should preserve the records at-least for a period of 8 years.

What is the difference between Liquidation and Dissolution?

Liquidation is the process in which the assets are realized to pay off the creditors and other stakeholders. Whereas Dissolution is the process in which the complete operation and affairs of the company has come to an end and where the company is no more in existence.

Voluntary Winding-Up of Company & LLP

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