The Insolvency and Bankruptcy Code, 2016 (IBC) not only allows the insolvency
proceedings of the insolvents but the Code also lays down provisions for those
solvent companies who want to dissolve their business. The position of the
solvent company must be that it is able to pay off its debts to be qualified for
voluntary liquidation. Section 59 of the Code specifies Voluntary Liquidation of
the Corporate Persons.
Even after the Companies Act, 2013 came and before the
IBC was enacted, the voluntary winding up of companies was seen by High Courts.
After the latest provision, Voluntary Liquidation of Corporate Person including
Company can take place under Section 59 of the Code.
Meaning of Voluntary Liquidation
Voluntary Liquidation means that a company is to be liquidated at the wish of
members. It is a private liquidation proceeding where the intervention of Courts
is very minimal. This process is carried out in situations where:
- The entity was formed with a specific objective and now it has been
- It is provided by the articles that the entity should be liquidated on
the occurrence of an event and that event has occurred;
- It is unable to carry its own business.
Rules that need to be followed before commencement of the Voluntary Liquidation
are declaration of solvency, members approval, creditors approval, and
communication to ROC and IBBI. Voluntary liquidation commence after receipt of
the required approval, the voluntary liquidation process shall be deemed to
commence from the date on which special resolution is passed by the members
along with the approval of creditors. Effect of Liquidation includes end of
carrying out business by corporate person from liquidation commencement date and
it shall carry business only for the beneficial winding up of business.
The Process of Voluntary Liquidation
- Appointment of Liquidator
The members of the company after declaration of solvency shall pass special
resolution for the appointment of Insolvency Professional to tackle the
voluntary liquidation process. Only eligible insolvency professionals shall be
appointed as liquidator.
- Public Announcement by Liquidator
The liquidator shall make a public announcement within five days of his
appointment. Then the liquidator shall request the stakeholders to submit their
- Submission of proof of claim by creditors
Following the public announcement by the liquidator, all persons who claim to be
stakeholders of the corporate person shall be submitted and prove their claim
for debts. The persons who claim to be the creditors or stakeholders of the
corporate creditor need to submit their proof of claim.
- Verification of claims
The liquidator on receipt of claims needs to verify the claims received within a
period of 30 days from the last date by which claims were expected to be
submitted by the creditors. While verifying the received claims, liquidator may
accept or reject the received claims.
- Preparation of list of stakeholders
After verification of received claims, the liquidator prepare a list of
stakeholders keeping in mind the claims received and accepted by him. The list
shall be prepared within 45 days from the last date for receipt of the claim.
- Realization of Assets of the corporate person
After the list of stakeholders is prepared, the liquidators need to commence
with realization of the assets of the corporate person. The liquidator by
himself or with the help of a registered valuer confirm the value of the assets
in the prescribed manner agreed by the corporate person.
- Opening of corporate person's separate bank account
With realising the assets of the corporate person, the liquidator also needs to
open a separate bank account in a bank especially for the voluntary liquidation
for collecting all money due to the corporate person. Also, the bank account
name must contain in voluntary liquidation.
- Distribution of the realized proceeds
After realization of assets and opening of bank account the liquidator then
distribute the proceeds received by realizing the assets of the corporate person
within a period of 6 months from the date of receipt of the amount among the
- Preparation of Final Report
After the distribution of the assets of the corporate person, the liquidator
needs to draft a final report of the liquidation process including the audited
accounts of the liquidation along with the report. After the report is prepared
by the liquidator, it needs to be sent to the concerned registrar of companies,
both NCLT and the Insolvency and bankruptcy board.
- Application for dissolution of the corporate person
After completion of affairs of the corporate person and its assets realisation
and distribution among the stakeholders, the liquidator need to file an
application to the concerned adjudicating authority regarding dissolution of the
The adjudicating authority then needs to pass a dissolution order in favour of
the corporate person mentioning that the corporate person stands dissolved from
the date of the order.
Functions of the liquidator in voluntary liquidation:
- Verification claims of all the creditors
- Carry out the business of the corporate debtor for its beneficial
- Establishing value, to sell or recover and realizing all assets and
money due to corporate person in a time bound manner.
- Opening a separate bank account for collecting all money due to the
- Paying and settling the creditors of the corporate person.
- Obtaining any professional aid from any person or appointing a
professional to discharge his duties.
- To distribute proceeds to the stakeholders within six months of receipt
of the proceeds.
- To maintain a physical or an electronic copy of the reports, registers
and books of account for a minimum eight years after the dissolution of the
The introduction of new regulations by the Government is beneficial as they run
the process of voluntary winding up in a time-bound manner. It is a step in the
right direction and is appreciated by the corporates as well as professionals.
The IBBI has changed the process of liquidation to make it time-bound. The new
rules require the process to be finished within one year of its commencement. It
is clear that voluntary liquidation is a process for winding up the affairs of a
company without much difficulties or conditions. It introduced easy exit for
solvent companies which voluntarily wish to do so given that they cleared or
have the capability to clear off their debts.