Voluntary Winding-Up Of Company & LLP
Voluntary Liquidation is the process of liquidating the company or LLP with the approval of its members. A company usually goes for a voluntary liquidation when its members decide not to continue its business operations. The main objective is to discontinue the operations and distribute its assets while also paying its debts.
Overview – Voluntary Winding-Up of Company
Voluntary Liquidation or Voluntary Winding up of a company in India is administered under Insolvency and Bankruptcy Code, 2016 is applicable to ‘a corporate person’.
A “Corporate Person” means a company registered under the Companies Act, 2013 or a limited liability partnership registered under the Limited Liability Partnership Act, 2008, or any other person incorporated with limited liability under any law. However, any kind financial service providers are not covered under this definition.
Voluntary winding up of a company or Voluntary Liquidation of a Company and LLP is governed by the provisions of Section 59 of Insolvency and Bankruptcy Code, 2016 (“IBC”) read with Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017.
Conditions to start Voluntary Liquidation under IBC
A Limited liability company or a LLP that want to liquidate under voluntary liquidation process must fulfil certain conditions under Insolvency and Bankruptcy Code, 2016 and must follow the process as prescribed under IBBI (Voluntary Liquidation process) Regulations, 2017.
1. Solvency of Entity
Corporate Person which proposes to be liquidating under voluntarily liquidation process should not have committed any default.
2. No Default of Debt
“Default” means non-payment of debt when the whole or any part or instalment of the amount of debt has become due and payable and is not repaid by the corporate debtor. It includes a default of financial debt not only to the applicant financial creditor, but also to any other financial creditor of the corporate debtor.
Hence, only those Companies and LLP’s which has not defaulted can initiate voluntary liquidation proceedings under the provisions IBC.
Note: This resolution shall be also approved by the creditors in case company owes any debt to them.
Voluntary Liquidation of Company – Process
Voluntary Liquidation under Insolvency and Bankruptcy Code, 2016 is a systematic process strictly controlled and and administrated by IBBI and National Company Law Tribunal (NCLT).
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Voluntary Winding-Up of Company & LLP – Requirements
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Proceed with Voluntary Liquidation under Insolvency and Bankruptcy Code, 2016
Process of Voluntary Winding-Up (Voluntary Liquidation)
Step 1: Convene Meeting of Directors / Designated Partners
Step 2: Declaration of Solvency by Board / Designated Partners
Step 3: Convene General Meeting of Shareholders / Partner
Step 4: Appointment of Insolvency Professional as Liquidator
Step 5: Filings with Registrar of Companies and IBBI
Step 6: Filings with Registrar of Companies and IBBI
Step 7: Public Announcement by Liquidator
Step 8: Preliminary Report by Liquidator
Step 9: Opening of Bank Account for Liquidation purpose
Step 10: No-Objection from Tax Authorities
Step 11: Realization of Assets
Step 12: Distribution of Proceeds to Stakeholders
Step 13: Completion of Liquidation
Step 14: Annual Report – (if Liquidation extended beyond 12 months)
Step 15: Final Report by Liquidator
Step 16: Application to NCLT
Step 18: Filing of by NCLT order with IBBI & Registrar of Companies
Step 19: Preservation of records by Liquidator
- Resolutions by Meeting of Directors / Designated Partners
- Declaration of Solvency by Board / Designated Partners
- Resolutions by General Meeting of Shareholders / Partner
- Consent from Insolvency Professional as Liquidator
- Letter of Appointment of Insolvency Professional as Liquidator
- Form MGT-14 / GNL-2 Filings with Registrar of Companies and IBBI
- Public Announcement by Liquidator in Newspapers and IBBI Website
- Preliminary Report by Liquidator
- Bank Account opening by Liquidator
- Communications to Regulatory Authorities
- No-Objection from Tax Authorities
- Auctioning of Assets, if any
- Annual Report by Liquidator
- Final Report by Liquidator
- Application to NCLT with copies of Complete documents
- Order From NCLT
- Filing of by NCLT order with IBBI & Registrar of Companies
Voluntary Winding-Up (Voluntary Liquidation) of Company
Solvency of Entity
Company / LLP should be solvent and it will be able to pay its debts in full from the proceeds of assets to be sold in the voluntary liquidation.
No Default by Entity
Company / LLP should not have committed any default of repayment of debt.
Appointment of Insolvency Professional (IP)
Company / LLP should appoint an Insolvency Professional (IP) as Liquidator to carry the Liquidation process.
Not to defraud any one
The Company / LLP should not be liquidated to defraud any person.
Faq – Voluntary Winding-Up of Company & LLP
Who can opt for voluntary winding up under IBC?
What are the primary Conditions to start voluntary liquidation under IBC
Whether appointment of Insolvency Professional (IP) is Mandatory?
Who can be Appointed as Liquidator?
What is the timeline for completion of voluntary liquidation under IBC?
Is there separate members’ and creditor’s voluntary winding up under IBC?
When the liquidation is deemed to be commenced?
Who is the Adjudicating Authority under IBC?
How long should the liquidator preserve the records of the voluntary liquidation?
What is the difference between Liquidation and Dissolution?
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