Voluntary Liquidation – Corporate Restructuring, Insolvency, Liquidation & Winding-Up Important Questions

Question 1.
The procedure to be followed for voluntary liquidation proceedings is largely similar to the procedure followed for insolvent liquidation. However, there are differences between them. What are such marked differences?
Answer:
The procedure to be followed for voluntary liquidation proceedings of the Insolvency and Bankruptcy Code, 2016 is largely similar to the procedure to be followed for insolvent liquidation. However, following are the key differences between them

1. To initiate voluntary liquidation proceedings, where the corporate person is registered as a company, the directors have to provide a declaration of solvency and a declaration that the company is not being liquidated to defraud any person.

2. The declarations have to be accompanied by
(a) audited financial statements of the company and
(b) record of its business operations for the previous 2 years or the period since its incorporation whichever is later.

3. Further, a report of the valuation of the assets of the company prepared by a registered valuer has to be provided.

4. A resolution in favour of the voluntary winding-up of the company and appointment of an insolvency professional as the liquidator has to be passed within four weeks of the declaration under the Code.

5. Where 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, within 7 days of such resolution.

Question 2.
“Appointment of Voluntary Liquidator does not require approval of Tribunal but Company can be dissolved on the orders of National Company Law Tribunal.” Discuss the above in the background of initiation of voluntary liquidation and consequent dissolution of a company.
Answer:

  • The Insolvency and Bankruptcy Code, 2016 provides for initiation of voluntary liquidation proceedings by a corporate debtor.
  • Any corporate person who intends to liquidate itself voluntarily and has not committed any default may initiate voluntary liquidation proceedings.
  • The voluntary liquidation of a corporate person shall meet such conditions and procedural requirements as may be specified by the Insolvency and Bankruptcy Board of India.
  • A resolution passed by special majority appointing none other than an Insolvency Professional as voluntary liquidator begins the initiation.
  • Directors need to file a Declaration of Solvency at least 30 days prior to passing the resolution.
  • In case there remains any creditors, 2/3rds in value of creditors should approve the resolution passed earlier within next 7 days. The resolutions need to be filed within next 7 days with ROC.
  • The Insolvency Professional needs to be independent of corporate debtor.
  • After realization and distribution, the voluntary liquidator files report before the Tribunal.

Corporate Restructuring, Insolvency, Liquidation & Winding-Up Notes