Companies that intend to liquidate and do not have debts with anyone can initiate voluntary liquidation procedures. A company may choose to be liquidated voluntarily in a variety of situations, including liquidation due to the expiration of the operating period specified in the company bylaws or the occurrence of a dissolution event specified in the company bylaws.
With the introduction of the Insolvency and Bankruptcy Code, 2016, voluntary liquidation has become very easy. This is now a hassle-free process compared to previous options available under Companies Act, 2013. Section 59 and Section 35-53 deals with the provisions of Voluntary liquidation.
Criteria to be satisfied for voluntary liquidation of a company:
a) A statement of the majority of the directors of the company in the form of affidavit stating that:
(i) They have conducted a thorough investigation of the affairs of the company and have formed an opinion that the company is not in debt or will have debts. Debts can be paid with the proceeds of voluntary liquidation and sale of assets;
(ii) The company has not been liquidated to deceive anyone.
b) The statement under the point (a) must be accompanied by the following documents: (i) The audited financial statements and business records of the company in the first two years or after the establishment of the company, whichever occurs later; (ii) Valuation report of assets of the company prepared by the Registered Valuer (if any).
The company must also convene a shareholder meeting within 4 weeks of making the above declaration to pass the below resolution:
Special resolution for liquidation of the company i.e consent of 76% or above shareholders.
Appointment of Insolvency Professional to act as Liquidator.
If liquidation due to the period specified in the Articles of Association (AOA) or any of the events mentioned in AOA, suitable resolution should be passed for this purpose along with appointment of Liquidator.
However, when the corporate debtor is a company, the creditor representing two-thirds of the value of the company’s debt must support the resolution within seven days of the resolution.
Steps to be followed after passing the above Resolutions:
The company must also notify the Registrar of Companies and the Insolvency and Bankruptcy Board of India within 7 days (as the case may be) after the resolution is passed or subsequently approved by creditors.
The company must also notify the Registrar of Companies about the declaration of solvency and the appointment of the liquidator in the GNL-2 form.
With the approval of the creditors, the voluntary liquidation procedure of the company will be understood to have commenced on the day on which the resolution of the general shareholders' meeting is issued.
Once the voluntary liquidation gets started, the liquidator will be in charge of the company. He will make a list of payments or assets available and he will distribute the available amount to shareholders or creditors as the case may be. Before making any payment he will make sure that, there is no liability payable towards any authorities and will seek no objection letter from authorities as required.
Once the affairs of the company have been liquidated and its assets have been fully liquidated, the liquidator must apply to the NCLT for the dissolution of the company.
The company will be dissolved in accordance with the order of the NCLT.
Within 14 days from the date of the order, a copy will be sent to the Registrar of Companies and other authorities where the company is registered , if any.
Benefits of voluntary winding up.
Easy exit for the corporates who have no assets or liabilities.
Very cost effective.
Very clean and professional way of exiting.
Once NCLT issues order of dissolution, thereafter no one can make any application for revival of the company.
The rules and processes are very clear and there is no ambiguity in the exit related regulations.
Any intention to defraud stakeholder will be punishable.
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