VOLUNTARY LIQUIDATION OF A COMPANY:

Voluntary liquidation is a process where the solvent company chooses to wind up its
operation and distribute its assets among its shareholder in a systematic manner.

The term liquidation is nowhere defined in IBC, 2016, but in simple terms, liquidation of a
corporate debtor refers to the end of its operation or existence. Liquidation is a process which
is to be initiated in an event when CIRP fails, and liquidation is of two types:

 Voluntary liquidation
 Compulsory liquidation

Prior to the enactment of Insolvency and Bankruptcy Code, 2016 the provisions of companies
act, 2013 deals with the voluntary liquidation of corporate debtor, but after the enactment of
IBC, 2016 the provisions of voluntary liquidation are now, dealt under IBC. The provisions
in the companies act, 2013 for voluntary liquidation has been omitted.

Now, Voluntary liquidation is also of two types:

 Members voluntary liquidation

In member’s voluntary liquidation, shareholders of a company decide to put it into liquidation

Chapter III of IBC talks about the liquidation proceedings and chapter V, section 59 of the
code talks about the voluntary liquidation of a corporate debtor but there are certain
conditions that are provided in section 33 of the code which need to be fulfilled.

Section 53 of the code talks about the, order of priority in which the assets shall be
distributed:

1. The insolvency resolution cost and the liquidation cost paid in full.
2. Workmen’s dues for the period of twenty-four months preceding the liquidation
commencement date.
3. Debts owed to secured creditors.
4. Wages and any unpaid dues owed to employees other than workmen for the period of
twelve months preceding the liquidation commencement date.
5. Financial debts owed to unsecured creditors.
6. Any amount due to the Central Government and the State Government including the
amount to be received on account of the Consolidated Fund of India and the
Consolidated Fund of a State, if any, in respect of the whole or any part of the period
of two years preceding the liquidation commencement date.
 7. Debts owed to a secured creditor for any amount unpaid following the enforcement of
security interest.
8. any remaining debts and dues
9. preference shareholders, if any; and
10. Equity shareholders or partners, as the case may be.

For the tax liabilities outstanding in the books, section 88 (3) of the CGST act, 2017 states
that when any private company is wound up and any tax, interest or penalty is determined
under this act on the company for any period, whether before or in the course of or after its
liquidation, cannot be recovered, then every person who was a director of such company at
any time during the period for which the tax was due shall, jointly and severally, be liable for
the payment of such tax, interest or penalty, unless he proves to the satisfaction of the
commissioner that such non-recovery cannot be attributed to any gross neglect, misfeasance
or breach of duty on his part in relation to the affairs of the company.

PROCESS OF VOLUNTARY LIQUIDATION UNDER IBC, 2016:

Section 59 of IBC together with Insolvency and bankruptcy board of India (Voluntary
liquidation process) regulations, 2017 (Voluntary liquidation regulations) provides the
mechanism for voluntary liquidation of a corporate person. The major steps for voluntary
liquidation process under section 59 of IBC are as follows:

Step 1: Board meeting is held approving the voluntary liquidation. Section 59(3) (a) of the
Code provides that majority of the directors of the company shall pass declaration regarding
solvency and that the company is not being liquidated to defraud any person. Such
declaration is to be accompanied with (a) audited financial statements and record of business
operations of the company for the previous two years or since its incorporation, whichever is
later and (b) a report of the valuation of assets of the company, if any, prepared by a
Registered Valuer.

Step 2: Passing of shareholder’s resolution and appointing a Liquidator. Section 59 (3) (c) of
the Code provides that there shall be a resolution / 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. Further, creditors representing
two-thirds in value of the debt of the company shall approve the said resolution within seven
days of such resolution.

Step 3: Liquidator files the resolution to Insolvency and Bankruptcy Board of India (IBBI)
and RoC within seven days as per section 59(4) of the Code and regulation 3 (2) of Voluntary
Liquidation Regulations. Regulation 14 of Voluntary Liquidation Regulations requires to
make public announcement (in English and regional newspapers) within five days calling
stakeholders to submit claims within 30 days (section 38 (1) of IBC).

Step 4: Opening a designated bank account for cash and liquid funds and closure of existing
bank account(s) and transfer of funds to designated bank account.
Step 5: Apply for No Objection Certificate (NOC) in Central Board of Direct Taxes, Central
Board of Indirect Taxes and Custom, Employee Provident Fund Organisation and sectoral
regulators. It is important to note that these compliances are not explicitly mentioned in the
Code but these compliances are implied.

Step 6: Liquidator gives final remittance to shareholders and deposits applicable withholding
taxes and then closes the bank account.

Step 7: Liquidator then submits a final report to shareholders, RoC, IBBI and National
Company Law Tribunal (NCLT).

Step 8: Order is passed by NCLT.

Step 9: File copy of order for dissolution of corporate debtor (CD) with RoC vide Form INC
28 and RoC to strike-off the name of CD from RoC. This is also not specified under the
Code; however, this task is also implied.

PROCESS OF VOLUNTARY LIQUIDATION UNDER COMPANIES ACT, 2013:

Section 248(2) of the Companies Act is currently the most popular way to voluntarily close a
company. A company may, after extinguishing all its liabilities, by a special resolution or
consent of 75% members in terms of paid-up share capital, file an application in a prescribed
manner to the RoC. There must not be any pending litigations against the company. This is
considered to be a faster winding up process.

Step 1: Company has to convene a board meeting to approve closure of bank account, pay off
all the pending liabilities, and prepare the latest financial statement of the company after
closure of bank account.

Step 2: Company files a STK-2 form with the respective RoC.

Step 3: Director shall furnish declaration in the e-form stating that the company does not have
any dues towards any government department. This has to be certified by a Chartered
Accountant/Cost Accountant/Company Secretary.

Step 4: RoC issues a public notice in a prescribed manner in (i) MCA website; (ii) Official
Gazette; (iii) Largest circulating newspaper, one in English and other one in vernacular
language giving 30 days’ notice time for any claims and objections to be raised. If the
company applying for winding up is regulated under Special Act (under section 8), approval
of the concerned Regulatory body is required, otherwise not required.

Step 5: After expiry of notice period, RoC may strike off company’s name and publish
dissolution notice in Official Gazette.
REFERENCES:

https://ies.gov.in/pdfs/IBBI-publication-SA.pdf

https://blog.ipleaders.in/winding-up-of-a-company/#Voluntary_winding_up_of_a_company

https://sociallawstoday.com/winding-up-of-company/#google_vignette