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Voluntary Liquidation

Voluntary Liquidation

With recent amendment to IBBI regulations for voluntary liquidation dated 31.1.2024, the process for voluntary liquidation has become more transparent, efficient and faster. These amendments have also brought some additional safeguards to protect interest of stakeholders.

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Eligibility for voluntary liquidation under IBC

A corporate entity that wishes to voluntarily liquidate itself under Section 59 of the Insolvency and Bankruptcy Code (IBC) must meet the following conditions:

It must not have defaulted on any debt.

The majority of its directors must provide a declaration, supported by an affidavit, stating that:

• They have made a complete inquiry into the company's affairs.
• They believe the company has no debts or will be able to pay its debts in full from the sale of its assets.
• The liquidation is not intended to defraud any person.

This declaration must be accompanied by audited financial statements for the preceding two years (or since incorporation, if later) and a valuation report of the company's assets by a registered valuer.

Voluntary Liquidation of a Company (Under IBC, 2016):

• The company decides to initiate the liquidation process voluntarily because it is unable to pay its debts or it wants to wind up its operations for other reasons.
• The decision to liquidate is taken by the company's shareholders through a special resolution (passed in a meeting) or by a resolution passed by creditors.
• The company appoints a liquidator who manages the process of selling assets, settling liabilities, and distributing any remaining assets to the stakeholders.

Voluntary Liquidation of a Company (Under Companies Act, 2013):

• If a company is solvent (able to pay its debts), it can opt for voluntary liquidation under the Companies Act, 2013.
• The process is initiated by the company's shareholders passing a special resolution.
• The company appoints a liquidator to carry out the liquidation, and the liquidator's duty is to ensure that all assets are sold, liabilities settled, and the remaining assets are distributed among the members.

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