Introduction
The insolvency and Bankruptcy Board of India (IBBI) via its notification dated 31st March 2017 have issued regulations for voluntary liquidation of corporate persons. These regulations came into force with effect from 1st April 2017. The Corporate persons shall include limited liability partnerships, companies, and other incorporated entities for these regulations.
Chapter V of the Insolvency and Bankruptcy Code, 2016 consolidates the bankruptcy, insolvency and liquidation laws for the companies. The Bankruptcy code attempt to shift the process of voluntary liquidation from the scope of the Companies Act, 2013. The newly effected regulations are a result of the same and are made by the board in the exercise of the powers conferred upon it through Section 59, 196, 208 read with 240 of the Insolvency and Bankruptcy Code, 2016. This article shall provide the major highlights of the newly effected regulations for voluntary liquidation of corporate persons.
Highlights
The regulation prescribes the entire process of liquidation right from the initiation to the dissolution of the corporate persons. The regulations provide that:
- A corporate person may opt to initiate a proceeding for its voluntary liquidation if it has not committed any default in payment of its debts.
- A declaration of solvency is need to be given by majority of directors/ designated partners of corporate person.
- A special resolution for voluntary liquidation will be required to be passed to obtain the approval of shareholders/ contributors of the corporate person within four weeks of declaration of solvency by the directors as mentioned in the above point. The process of voluntary liquidation shall be deemed to be initiated from the date of passing the special resolution.
- The corporate person is required to appoint an insolvency professional to act as a liquidator. The corporate person should not carry any business activity after the appointment. The regulations also provide the procedure for appointment and the eligibility criteria for the person to be appointed as an insolvency professional.
- The regulations also prescribe the manner for submitting the claims of operational and creditors, employees and other stakeholders
- The liquidator shall prepare a list of claims within 30 days of receipt of claims and prepare a list of stakeholders within 45 days of receipt of claims. After completing this, the liquidators shall realize the assets of the company, recover outstanding debtors and unpaid capital/ contribution. This money should be deposited in a separate bank account and shall be distributed to stakeholders within six months of its receipt.
- If the proceeds of receipts in the above point are not sufficient to pay off the debts of the corporate person, the liquidator shall make an application to the National Company Law Tribunal (NCLT) to pass the order the tribunal may deem fit.
- The liquidator shall complete the liquidation process within twelve months of commencement. If for any reason, the liquidation is not completed within the specified period, he should call for a meeting of contributories to present annual status report at the end of each year.
- Liquidator must submit his final report to the Registrar of Companies (RoC) and the IBBI and shall make an application to NCLT to dissolve the corporate person.
- The liquidator is also mandatorily required to preserve and maintain copy of reports, registers and books of accounts of the corporate person for minimum eight years after the dissolution.
Conclusion
The regulations are an innovative toward having separate code for voluntary liquidation of companies not having much operations. Closing a company in India is a lengthy and cumbersome process. The introduction Insolvency professionals is again a welcome move as they shall the experts in intricate issues involved in the process of dissolution of the company.
