The Insolvency and Bankruptcy Board of India (“IBBI”) vide its notification dated 31 March 2017 has issued the Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017 (“the Regulation”) and shall come into force on 1 April 2017. These regulations apply to the voluntary liquidation of Corporate persons under Section 59 of Chapter V of Part II of the Insolvency and Bankruptcy Code, 2016 (“Code”).
Provisions required to be referred for Voluntary Winding Up (VWU) of a Company
- Section 59 of Code
- Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017
- Section 35 to Section 53 of the code read with Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016
- Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016
Regulatory authorities for dealing with VWU cases
- The Insolvency and Bankruptcy Board of India
- Registrar of Companies
- National Company Law Tribunal
Procedure for VWU of a Company
I. Declaration of Solvency
Declaration from majority of Directors stating that they have made a full inquiry into the affairs of the Company and they have formed an opinion that 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 liquidation and Company is not being liquidated to defraud any person;
- Affidavit verifying the above from the majority of Directors;
- The aforesaid declaration shall be accompanied with audited financial statements and record of business operations of the company for the previous 2 years or for the period since its incorporation, whichever is later and a report of the valuation of the assets of the company, if any prepared by a registered valuer;
- Hold a Board meeting to approve the declaration and proposal for winding up of the company, close the bank accounts and open a Liquidation account;
- There is no prescribed provisions for filing of Declaration with the authority unlike the provisions of Companies Act, 1956. However, it is recommended to file the same with RoC in Form GNL-2;
- II. General Meeting for initiating VWC
- Pass a special resolution by the shareholders of the company requiring the company to be liquidated and appointing an insolvency professional to act as the liquidator with the details of remuneration within 4 weeks from the date of declaration (Please refer Insolvency and Bankruptcy Board of India (Insolvency Professionals) Regulations, 2016 issued on 23 November 2016 for eligible criteria for appointment of liquidator)
- If a company owes any debts to any person, creditors representing 2/3rd in value of debt shall the approve the resolution for liquidation within 7 days of resolution passed by the members
- Company shall file resolution with RoC in Form MGT-14 and with the Board (no specific form prescribed) within 7 days of passing such resolution
- III. Intimation to other regulatory authorities
- Intimation to the income-tax department and other statutory department about the commencement of liquidation by the Company
- Intimation to the Company’s Banker regarding commencement of liquidation and opening of liquidation account for the said purpose (Liquidator will act as signatory to the account)
- IV.Public announcement and Claims
- Liquidator shall make a public announcement in Form A of Schedule I of Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017 within 5 days from his appointment (English news paper and one regional language newspaper)
- The said public announcement shall call upon stakeholders to submit their claims as on the liquidation commencement date and provide 30 days’ time for stakeholders to claim their dues;
- Operational creditors (person to whom an operational debt is owed and includes any person to whom such debt has been legally assigned or transferred) shall submit their claims in Form B, Financial creditor (any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to) in Form C, workmen and employees in Form D and any other stakeholder in Form F
- Liquidator within 30 days from the last day for receipt of claims, verify the claims and prepare list of stakeholders within 45 days from the last day for receipt of claims
- Liquidator shall submit a Preliminary report to the Company within 45 days from the liquidation commencement date detailing the capital structure of the company, estimate of its assets and liabilities, proposed plan of action for carrying out the liquidation, estimated liquidation cost and time
V. Realization of assets and payment of liabilities
- Liquidator may engage professionals to assist him in the discharge of his duties and obligations. However, such professional shall not be his relative, related party to the company or auditors to the company at any time during the 5 years preceding the liquidation commencement date
- Liquidator to sell the assets and realize the money and distribute the same to the stakeholders
- Liquidator shall endeavour to complete the liquidation process within 12 months from the liquidation commencement date
- VI. Final Report
- On completion of liquidation, liquidator shall prepare the final report containing the details prescribed in rule 38 of Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017.
- Liquidator to submit the report to the RoC and Board and make an application to NCLT for the dissolution of the company;
- NCLT after verification, pass an order for dissolution of the company and a copy of such order is required to be filed with the RoC within 14 days of such order
- The liquidator shall preserve a physical or an electronic copy of the reports, registers and books of account referred to in Regulations 8 and 10 for at least eight years after the dissolution of the company, either with himself or with an information utility
Compliance to be undertaken in the event of the liquidation process continuing for more than twelve months
- Hold a meeting of shareholders within 15 days from the end of 12 months from the liquidation commencement date, and at the end every succeeding twelve months till dissolution of the company
- Shall present an Annual Status Report(s) indicating progress in liquidation including
- settlement of list of stakeholders
- details of any assets that remains to be sold and realized
- distribution made to the stakeholders
- distribution of unsold assets made to the stakeholders
- developments in any material litigation, by or against the company
- filing of, and developments in applications for avoidance of transactions in accordance with Chapter III of Part II of the Code.
- The Annual Status Report shall enclose the audited accounts of the liquidation showing the receipts and payments pertaining to liquidation since the liquidation commencement date
Preparation of quarterly Progress report by Liquidator in case of VWU
As per Section 59 of the code, the provisions of Section 35 to 53 of Chapter III and Chapter VII of the code shall apply to VWU with such modifications as may be necessary. Chapter III of the code deals with liquidation of a corporate person in case the insolvency resolution process is not completed and the NCLT orders for liquidation of the corporate person.
As per Section 35 (n) of the code, it is the duty of liquidator to report the progress of the liquidation process to the NCLT in the manner prescribed in Insolvency and bankruptcy Board of India (Liquidation Process) Regulation 2016. As per said regulation, Liquidator shall submit first Progress report within 15 days from the end of the quarter in which he is appointed and subsequent progress report within 15 days after the end of every quarter during which he acts as liquidator. Progress report shall contain the details prescribed in regulation 15 of Insolvency and bankruptcy Board of India (Liquidation Process) Regulation 2016.
As VWU of a company is also required to follow the section 35 to 53 of the code with such modification, it is hereby interpreted that, the liquidator in case of VWC also required to prepare a report on quarterly basis and submit the same with RoC/Board.
As per recent notification, IBC rule is not applicable to the voluntary winding up cases initiated prior to 1 April 2017 and hence, any proceedings initiated post 1 April 2017 is required to follow the IBC procedure for VWC.
Thus, every Company who proposes to wind up its affairs, is required to follow the Insolvency Bankruptcy code regulation with effect from 1 April 2017. The code has placed more responsibility on Liquidator to comply with the provisions and hence, Liquidator is required to be well versed with the provisions before he could take up the winding up assignment. The regulation also prescribed the manner of selling of assets and realizing money.
The views and opinions expressed in this article are those of the authors and it is not binding on any person or on any regulatory authorities. My article is based on the Act/rules at the time of publication and the same should not be construed as legal opinion on the application of the provisions.