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Voluntary liquidation process of Corporate persons

Section 304 of the Companies Act, 2013, provides for voluntary winding by the Company. But the concept of Voluntary Liquidation of Corporate Persons is distinguished from the companies' voluntary winding up as stated under the Companies Act, 2013. Section 59 of Chapter V of Insolvency and Bankruptcy Code, 2016, talks about Voluntary Liquidation of Corporate Persons. The main focus is to understand Voluntary Liquidation of Corporate Persons and under that the procedure, initiation and effect of Liquidation, power, and duties of Liquidator, and completion of Liquidation.

Section 59(1) states that if a corporate person intends to liquidate itself voluntary and proves that it has not committed any default, shall initiate proceedings of the Voluntary Liquidation process as described under the provisions of chapter V of Insolvency and Bankruptcy Code, 2016. Under sub-section (1) of 59, it is stated that Voluntary Liquidation of Corporate Persons shall meet all the conditions or procedural requirements as prescribed by the Insolvency and Bankruptcy Board.

Procedure for Voluntary Liquidation of Corporate Persons:
Section 59(3) states that Voluntary Liquidation of Corporate Persons shall have to follow certain conditions or essential pre-conditions as stated by the Insolvency and Bankruptcy Board.

Declaration of Insolvency:
Under Section 59(3)(a)(i) of Insolvency and Bankruptcy Code, 2016, it is stated that a Corporate Person has to make a declaration from the majority of the directors of the Company by filing an affidavit, they have to make a full inquiry into the affairs of the Company, and the Corporate Person has to form an opinion that either the Company has no debt or the Corporate Person has to state that it will be able to pay the due debts in full from the proceeds of assets of the Company that is to be sold in the Voluntary Liquidation.

Thus, any Company can apply for Voluntary Liquidation if that Company has not defaulted any person or defaulted in payment of that person and can repay its debt in full can apply. Section 3(12) of Insolvency and Bankruptcy Code, 2016, defines 'default' as the non-payment of the debt when all the due debts or the installments are payable but not repaid by the Corporate Debtor or the Debtor as the case may be.

Along with this, the Corporate Person has to ensure or state that the Corporate Person has not Liquidated to defraud any person in its affidavit. In addition to this, the Insolvency and Bankruptcy Board needs to list each debt on the corporate person's date. It has to make sure that the Corporate person shall pay its debt in full from the proceeds of the corporate person's assets to be sold in the Liquidation.

Necessary Documents
The Declaration of the Liquidation process is incomplete without the essential documents that need to be attached with the declaration by the Corporate Debtor. Section 59(3)(b) of the Insolvency and Bankruptcy Code, 2016, specifies the documents.
  1. The declaration shall be accompanied with the documents which include audited financial statements and for the previous two years or for the period when the Company is incorporated or established as the Company the record of business operations of the Company, the period of two years or the period when the Company is established will depend upon whichever is later.
  2. The Company is bound to give the valuation of the Company's assets if there is any which the registered valuer prepares.
In case of the Company applying for declaration, after the Company files the declaration, a meeting shall be held to approve the Company's Declaration and for the Company's winding up. Before the commencement of the declaration, the Corporate Person needs the approval of Members, Creditors and finally, need to communicate to Registrars of Companies (ROC) and Insolvency and Bankruptcy Board of India.

As per the provisions of the Insolvency and bankruptcy code, 2016, the comprehensive process for Voluntary Liquidation and its accompanying regulations are as follows:
  1. Appointment of Liquidator:
    The Company's members need to appoint the Insolvency Professional after furnishing the Declaration of the Voluntary Liquidation Process. It is a must to appoint only an eligible Insolvency Professional for the Voluntary Liquidation Process.
  2. Public Announcement by Liquidator:
    When the Liquidator is appointed, the Liquidator must make a public announcement, but it should be within five days of the appointment. After the Liquidator makes a public announcement, The Liquidator has to request the stakeholders to submit their respective claims within 30 days of the commencement of the Liquidation Process, which shall be considered as the last date for submission of the claims by the stakeholders for which the Liquidator has made a request for. After the Liquidator has made a public announcement, it needs to published in an English newspaper and one in a regional language newspaper. Still, that newspaper should be in wide circulation at the respectively registered office and this in the Corporate Person's website.
  3. Submission of proof of claim by Creditors:
    Within the time provided, all persons who claim that they are the Stakeholders of the Corporate Person need to submit and prove their claims for debt they made once the Liquidator makes the public announcement. The person who is claiming to be a Stakeholders or Creditors of the Corporate Creditor needs to submit their proof of claims and the annexing documents in the prescribed forms described under the Insolvency and Bankruptcy Code, 2016.
  4. Verification of claims:
    The Liquidator needs to verify all the stakeholders' claims or Creditor after 30 days from the date they made their claims that the Creditors made. It will be discretion on the Liquidator part whether to accept or reject the received claims while verifying the claims made by the stakeholders or Creditors. The Liquidator can also ask for any relevant information from the claimants needed while verifying those claims.
  5. Preparation of a list of Stakeholders:
    After verifying those claims made by the Creditors or stakeholders, the Liquidator needs to make a list of stakeholders who made claims that the liquidator is accepted after verifying those claims. After the date when the claim's receipt was given, the list needs to be prepared within 45 days as specified above.
  6. Realization of assets of the Corporate Person:
    When the stakeholder's list is finalized, then the Liquidator has to start with the commencement of realizing the corporate person's assets. In a prescribed mode or manner as approved by the Corporate Person, the Liquidator himself or with the registered valuer's assistance shall ascertain the assets' value. Simultaneously, the Liquidator, along with the registered valuer's assistance, shall commence the sale of the assets as approved by the Corporate Person in a prescribed mode or manner. Within the due time, the Liquidator shall begin realizing all the corporate person's dues and initiating a recovery process to realize all the assets. It has to be notified of the Liquidator that if there is any uncalled amount from any contributory, then the Liquidator at the time of realizing the assets shall call for the uncalled amount from that contributory.
  7. The opening of a separate bank account of a Corporate Person:
    For receiving all the money due to the Corporate Person, the Liquidator shall open a separate bank account in a scheduled bank while realizing all the corporate person's assets the Voluntary Liquidation Process. The name in the Voluntary Liquidation Process in the bank account shall include "involuntary liquidation" as part of the name in the bank account. The Liquidator is supposed to deposit all money, including the cheques and demand drafts of the Corporate Person in the bank account, while acting as the Liquidator of the Corporate Person. All payments that are more than five thousand rupees shall be deposited in the bank only in cheque or online banking transactions.
  8. Distribution of the realized proceeds:
    Within six months which has to be counted from the date of the receipt of the amount among the stakeholders, the Liquidator needs to distribute the realized proceeds after realizing all the assets are done and opening the bank account by the Liquidator. Before distributing the realized proceeds, the Liquidator shall deduct or reimburse the Liquidation cost incurred. With the Corporate Person's approval, the Liquidator realizes that he has come across the peculiar assets or cannot be readily or advantageously sold. The Liquidator shall distribute the assets among the stakeholders while distributing other assets of the Corporate Person.
  9. Preparation for final report:
    When the Liquidator completes the distribution of assets of the Corporate Person, the Liquidator needs to draft a final report of the Liquidation Process by consolidating audited accounts used in the Liquidation Process along with the report. When the Liquidator drafts the Liquidation Process's final report, the final report needs to be sent to the concerned Registrar of Companies, Insolvency and Bankruptcy Board and the National Company Law Tribunal.
  10. Application for dissolution of the Corporate Person:
    After the Corporate Person has completed the wound up and realization of all the assets, which are then distributed among the stakeholders, the Liquidator needs to apply to the Adjudicating Authority the dissolution of the Corporate Person. Once receiving the Corporate Person's application for the dissolution of the Corporate Person, the concerned Adjudicating Authority shall pass an order of dissolution of the Corporate Person on the application's receipt. The dissolution order shall be made in favour of the Corporate Person and stating that the Corporate Person shall stand dissolved from the date of the order passed by the Adjudicating Authority.
Effect of the Liquidation Process:
From the Liquidation Process's commencement date, the Corporate person shall deem to carry on the business. Only for the beneficial winding up of the Liquidation Process, the Corporate Person can carry on the business. As per the Provision of the Insolvency and Bankruptcy Code, 2016, even after the Liquidation Process, the Corporate Person shall exist until the board dissolves the Corporate Person.

Power and Duties of Liquidator:
Section 290 of the Companies Act, 2013, deals with the Company Liquidator's powers and duties. Under Section 290(1), in the tribunal's winding up, the Company Liquidator shall have the powers but subject to any direction given by the tribunal.

The powers are as follows:
  1. For the Company's beneficial winding up, the Liquidator shall carry on the business if necessary
  2. The Company Liquidator has the power to do all deeds, receipts, other documents and do all the acts and execute them in the name of the Company or on behalf of the Company.
  3. The Liquidator can sell all the undertakings of the Company as a going concern.
  4. If Liquidator needs to raise any money required of the assets on the Company's security, the Liquidator has the power to do so.
  5. The Liquidator can inspect the records or the Company's returns on the Registrar files or any other authority.
  6. When the Company Liquidator is unable to protect the assets of the Company, then he can take the assistance of any professional or appoint any other person to discharge the duties, responsibilities and obligations of the Company Liquidator, or he can appoint any person or an agent to do that business that Company Liquidator is unable to do himself in the Company.

Completion of Liquidation:
Under Regulation 37 of Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulation, 2017, Liquidation's Completion is stated. Within one year from the Voluntary Liquidation Process's commencement date, the Liquidator has to wind up the corporate person's affairs. He has to call for the meeting within 15 days from the commencement of the date when he was appointed as a Liquidator and at the end of each succeeding year.

The Liquidator needs to make a status report that shall enclose all the audited accounts of the Voluntary Liquidation. The report must show all the receipts and payments incurred by the Liquidator for Voluntary Liquidation Process from the Liquidation Commencement date.

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