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 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.
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.
Corporate Person which proposes to be liquidating under voluntarily liquidation process should not have committed any default.
"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 under Insolvency and Bankruptcy Code, 2016 is a systematic process strictly controlled and and administrated by IBBI and National Company Law Tribunal (NCLT).
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
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.
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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Proceed with Voluntary Liquidation under Insolvency and Bankruptcy Code, 2016
A Limited Company or LLP fulfils the required conditions can be wound up by voluntary liquidation process under Insolvency and Bankruptcy Code, 2016
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.
Yes. The Corporate person should appoint an Insolvency Professional (IP) as Liquidator to carry the Liquidation process.
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
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.
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
The voluntary liquidation proceedings are deemed to commenced from the date of passing of the resolution by the members subject to creditor’s approval.
Adjudicating Authority under IBC shall be National Company Law Tribunal constituted under section 408 of the Companies Act, 2013.
The liquidation should preserve the records at-least for a period of 8 years.
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.