Previously the Companies Act, 1956 dealt with the provisions of voluntary liquidation but with the advent of Insolvency and Bankruptcy Code, 2016 and the Companies Act, 2013 the voluntary winding up or voluntary liquidation, as the code defines, of the company can take place under section 59 of the IBC.
Even after the enactment of Companies Act, 2013 and before coming of IBC into the picture the voluntary winding up petitions were facilitated by High Courts, now under the latest provision voluntary liquidation of corporate person including Company, Limited Liability Partnership, can take place under section 59 of the IBC.
Subsequently there are two liquidation petitions:-
- Proceedings already initiated and pending: As per rule 4 of the Companies (Transfer of Pending Proceedings) Rules, 2016 (Transfer Rules), brought into force from 1st April, 2017 prescribes that all applications and petitions relating to voluntary winding up of companies pending before a high court prior to 1st April, 2017, shall continue to be dealt with by the High Court under the provisions of Companies Act, 1956.
- Fresh voluntary liquidation proceedings to be commenced under IBC.
- According to Section 59 of IBC, Section 434(1)(c) and 465 of the Companies Act, 2013 and Rule 4 of the Transfer Rules, all voluntary liquidation proceedings on or from 1st April, 2017 shall be instituted before the NCLT and shall be governed as per the provisions of the IBC and its regulations.
INITIATION OF THE PROCESS
- As per Section 59 of the Code read with the Regulations, any corporate entity may initiate a voluntary liquidation proceeding if it satisfies all the following conditions:
- It has not committed any default;
- If majority of the directors or designated partners of the corporate person make a declaration verified by an affidavit to the effect that
2. The corporate person has no debt or it will be able to pay its debts in full out of the sale proceeds of its assets under the proposed liquidation; and
3. Liquidation is not initiated to defraud any person;
4. Such declaration is accompanied by the audited financial statements and valuation report of the corporate person;
5. Within 4 (four) weeks of such declaration, a special resolution (an ordinary resolution would suffice in cases of voluntary liquidation by reason of expiry of its duration or occurrence of any dissolution event) is passed by the contributories* requiring the corporate person to be liquidated and appointing an insolvency professional as a liquidator (Contributories’ Resolution);and
6. Creditor(s) representing two thirds in value of the total debt owed by the corporate person, approve the Contributories’ Resolution within 7 (seven) days of its passage (Creditors’ Approval).
7. As per the Regulations, a ‘contributory’ means a member of a company, partner of a limited liability partnership, and any other person liable to contribute towards the assets of the corporate person in the event of its liquidation.
8. As per Section 59(4), the company shall notify the ROC and the Board about the resolution passed under section 59(3) to liquidate the company with seven days of passing such resolution or subsequent approval by the creditors, as the case may be.
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