Discussion Paper on Voluntary Liquidation Process Introduction
Invitation of Public comments: Discussion Paper – Voluntary Liquidation Nov 2020
- Section 59 under Chapter V of Part II of Insolvency and Bankruptcy Code, 2016 (Code) read with the IBBI (Voluntary Liquidation Process) Regulations, 2017 (Voluntary Liquidation Regulations) provides that a Corporate Person (CP) may initiate voluntary liquidation proceedings if two conditions are met: (a) the CP has no debt or is in a position to pay all the debts; and b) the CP is not being liquidated to defraud any person. Such a declaration should be made by a majority of directors, partners or individuals constituting governing board, as the case may be, of the CP.
- The process is initiated upon passing of a resolution / special resolution by the members / partners or contributories, as the case may be, of the CP. The resolution so adopted shall also indicate appointment of an Insolvency Professional (IP) to act as liquidator. In case, the company owes any debt, the creditors representing two-third in value of the debt shall also approve such a resolution. The CP is required to notify the Registrar and the Board within seven days of such resolution or the subsequent approval by the creditors, as the case may be.
The liquidator makes a public announcement inviting claims, realises the assets of the CP and then makes an application before the Adjudicating Authority (AA) to order for dissolution of the CP. It may be noted that the law does not envisage any role of the AA at the stage of initiation of the voluntary liquidation process, unlike in the liquidation process. It envisages role of the AA in voluntary liquidation only under two circumstances: (a) where the affairs of the CP have been completely wound up, and its assets completely liquidated, the liquidator
shall make an application to the AA for dissolution of the CP; and (b) where the liquidator is of the opinion that the liquidation is being done to defraud a person or the CP is not solvent and will not be able to pay its debts in full from the proceeds of the assets to be sold in liquidation, he shall make an application to the AA to suspend the process of liquidation.
