Exit Option for a Solvent Company – Voluntary Liquidation

Exit Option for a Solvent Company – Voluntary Liquidation

The provisions relating to voluntary liquidation of a company were earlier covered under the Companies Act, 2013. After the notification of Insolvency and Bankruptcy Code, 2016 (“IBC”) the voluntary liquidation of a company is now governed by the provisions of section 59 of IBC and relevant regulations issued under IBC. The corresponding provisions under the Companies Act, 2013 in this regard have been repealed.

A corporate person will be eligible to opt for voluntary liquidation under IBC provided it fulfils the following two mandatory conditions:

  • Either the company has no debt or that it will be able to pay its debts in full from the proceeds of assets to be sold in the voluntary liquidation; and
  • the company is not being liquidated to defraud any person.

The broad steps involved in the voluntary liquidation are summarised below:

  1. Board of Directors will hold a board meeting and approve the voluntary liquidation and also issue a declaration of solvency.
  2. A meeting of the shareholders shall be convened to approve the voluntary liquidation of the company and appointment of an Insolvency Professional as a liquidator of the company.
  3. If the company owes any debt to any person, creditors representing two-thirds in value of the debt of the company shall approve the resolution passed by the shareholders within seven days of such resolution.
  4. Necessary filings will be done with the Registrar of Companies, Insolvency and Bankruptcy Board of India and Income Tax authorities.
  5. The liquidator will take over the charge of the company will proceed with further steps including realisation of assets of the company, settlement of outstanding dues and distribution of proceeds to the stakeholders.
  6. The liquidator shall give a public notice and invite claims from stakeholders.
  7. The liquidator shall endeavor to complete the liquidation process of the corporate person within twelve months from the liquidation commencement date.
  8. Where the affairs of the corporate person have been completely wound up, and its assets completely liquidated, the liquidator shall make an application to the Adjudicating Authority for the dissolution of such corporate person.
  9. The Adjudicating Authority shall on an application filed by the liquidator, pass an order that the corporate debtor shall be dissolved from the date of that order and the corporate debtor shall be dissolved accordingly.
  10. A copy of the order shall be forwarded to the authority with which the corporate person is registered.

In view of above provisions, voluntary liquidation is an expeditious process for winding up the affairs of a company without much complications or compliances.

Comments (13)

  1. Qualkraft Engineering [p] Ltd says on 17 Dec 2018

    Solvent private li,ited company with immovable assets disposed of, movable assets disposed and all creditor dues, obligatory expenses for ” winding ” fully settled but cash reserves from disposing immovable assets [sold legally ] is available for any contingency expenses, ITR filed upto AY 18=19 -board decides liquidation, delisting from RoC as comkpany is dormant for past two years Now with no infrastructure, no employee but alive in name only. Accumulated LOSSES app. Rs 60 lac with subscribed capital of Rs 3.76 kacs.** What will be the ” cost ” under this program – fees, for proffessional liquidater, submission and other cost demanded by RoC to approve our application

  2. Qualkraft Engineering [p] Ltd says on 17 Dec 2018

    Cost involved in liquidating a solvent company with no assets [ movable , immovable ] no employees , dormant for past two years with accumulated losses of Rs 60 lac app., subscribed capital Rs 4.76 lacs. but RESERVES created by sale of immovable assets and after disposing all, every debts, statutory dues, employee settlement etc. BUT is stumped by the costs involved under RoC IBC code 2016.Liquidater fees, liquidation costs demands of RoC seem to be ‘ out of the world ” claims.Can I have possible expense details ? Vasudevan , Director

    • Singhania Partners says on 03 Jan 2019

      Dear Mr. Vasudevan,This is with reference to your comments on the exit option.If there are no assets or liabilities in the company then it will be a much speedier process to go for voluntary liquidation provided the company is solvent. To have a better perspective of the cost involved, the cost of various statutory compliances on annual basis like audit of accounts, auditor’s fee, filing of returns with the ROC and Income Tax office etc. should be considered vis-à-vis the liquidation cost. Further, even in case of a dormant companies, directors will continue to be liable for all statutory compliances/obligations.The liquidation cost would broadly include liquidator’s fee, advocate fee for appearance before NCLT after completion of liquidation process, auditor’s fee for auditing the final accounts of the company, newspaper notice, filings with the ROC, etc. If there is not much activity involved then the total cost may be in the range of Rs. 6 to 8 Lacs.In case of dormant company, another option of striking off the name of the company may be explored, where overall cost should be lesser compared to liquidation cost.

  3. Yagnesh says on 17 Jul 2019

    Hello,Does the declaration of solvency need to be a single document signed by all directors or does it have to be issued individually by each director?Does your answer change if there is a foreign director involved?Thanks, Yagnesh

    • Singhania Partners says on 19 Jul 2019

      Dear Yoegsh,Declaration of Solvency will have to be given individually by the directors including foreign director. It will suffice if such declaration is given by majority of the directors.

  4. Sitaram says on 29 Jul 2019

    It appears that the NCLT has been permitting voluntary liquidation even in cases where the company is not solvent..under Section 10 of IBC. Recent case of Eolane Electronics by NCLT Bangalore is one of them

    • Singhania Partners says on 01 Aug 2019

      Dear Sitaram,Section 10 proceedings are different from voluntary liquidation, which will be under section 59 of IBC. Under section 10, solvency of the company is not a criterion for initiating the process. In the case cited by you, liquidation was ordered as no resolution plan was submitted within the specified time and please note that this was not a voluntary liquidation.”

  5. Vimal Koshy Mannanal says on 31 Jul 2019

    SirWhether order from NCLT is required for voluntary liquidation of unlisted company with no debt?

  6. Dr K Lakshmi Narasimha, Ph.D (Law) says on 28 Nov 2019

    You have stated only the option under IBC 2016 but did not address with regard to Sec.271/272 of the Companies Act.

  7. Shalini Chauhan says on 02 Jan 2020

    Dear Sir,Can a Company Shift its registered office under Voluntary Liquidation, under the circumstances where its GNL-2 has been approved by ROC and the time period of 30 days for inviting claims has been exhausted but the status of the same has not been changed to Under Liquidation on the Website of Ministry of Corporate Affairs

    • Singhania says on 03 Jan 2020

      Dear Shalini ChauhanIn the absence of any specific provision in this regard, the company may not be able to shift its registered office after the commencement of voluntary liquidation.”

  8. Ayush Rai says on 23 Jan 2020

    Dear Shalini,As far as my knowledge you cannot change the registered office of the Company even if the time period of receiving the claims has expired because you may receive the claims even after expiry of 30 days. But yes you can do so with the prior approval from NCLT.

  9. Tushar Srivastava says on 18 Jan 2022

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