Voluntary winding up of a Company – A brief guide to the closure provisions contained in Insolvency and Bankruptcy code, 2016

A Private limited company is tied with many regulations and compliances, if you do not carry on any business and the company is just sitting there, withstanding the test of time, the company is infact accumulating all the non-compliances which has to be complied with, if you wish to close the company in the future.

This article focusses on the process of voluntary winding up, you can find the details regarding fast track exit scheme in this link https://pioneerone.in/fast-track-exit-under-section-248-of-the-companies-act-2013/

By virtue of eleventh schedule notification dated November 15, 2016, provisions for voluntary winding up under sections 304 to 323 of Chapter XX of the Companies Act, 2013 was entirely omitted. As a result, the process of voluntary winding up is entirely governed by the provisions contained in section 59 of the Insolvency and Bankruptcy Code, 2016 and the regulations contained in the Insolvency and Bankruptcy Board of India (Voluntary Liquidation process) Regulations, 2017.

Steps	Particulars
Step 1:	Declaration of Solvency duly verified by an affidavit by majority of directors
Step 2:	Board meeting
Step 3:	General Meeting of shareholders/members
Step 4:	Intimation to ROC
Step 5:	Intimation to Insolvency and Bankruptcy Board of India (IBBI)
Step 6:	Public Announcement by Liquidator
Step 7:	Opening of bank account for liquidation in the name of the company
Step 8:	Intimation and NOC from Income Tax Department
Step 9:	Reporting by Liquidator
Step 10:	Collation of claims by liquidator
Step 11:	Verification of Claims & preparation of list of stakeholders by liquidator
Step 12:	Realization of Assets of the company
Step 13:	Distribution of proceeds to claimholders
Step 14:	Preparation of Final report by Liquidator
Step 15:	Application for Dissolution of company by Liquidator

Let us see the detailed process involved in each step,

• In case of Indian directors, the declaration should be in Rs.100 stamp paper
• In case of foreign directors, the declaration should be duly notarized and apostilled.
• Affidavit to be accompanied by,
  1. Audited Financial Statement of past two years/Since Incorporation whichever is later
  2. Records of Business Operations of past two year/Since Incorporation whichever is later
  3. Report by the Registered Valuer about the valuation of the assets of the Company, if any.
  4. Latest Financial Position of the Company, if any

The company should convene a Board meeting to discuss and approve,

• Voluntary winding up of the Company, subject to the approval of the Members in the General Meeting
• Appointment of an Insolvency professional as Liquidator subject to the approval of Members in the General Meeting
• To consider and approve Declaration of Solvency and affidavit by the directors of the Company
• To fix day, date, time and to send notice and agenda for General Meeting

The company should convene a General meeting to discuss and approve by way of a special resolution,

• Voluntary winding up of company and
• The appointment of an Insolvency professional as Liquidator.

Note: The special resolution should be approved within 7 days by creditors to whom 2/3rds of the total debt of the company is owed.

The company shall intimate to ROC within 7 days of approval of the resolution by members/subsequent approval by creditors.

• MGT 14:
  a. One for the Board resolution
  b. One for the special resolution passed in the general meeting
• GNL-2:
  a. For Declaration of Solvency & Appointment of Liquidator

The Liquidator needs to inform the IBBI within 7 days of his appointment date. I.e. within 7 days from the general meeting in which the appointment of the liquidator is approved by the members of the company.

The liquidator shall make a public announcement in Form A of Schedule I within 5 days from his appointment.

• Public Announcement (PA) to be published in one English Newspaper and one Regional Language Newspaper having wide circulation where the registered office and the principal office if any, of the Company is situated.
• Liquidator to intimate IBBI regarding Public Announcement.
• Public Announcement to be published on website of Company, if any

• Liquidator should open a Bank Account within 1 month of passing of Special resolution in the general meeting.
• Bank Account needs to be opened in the Name of the Company followed by the words ‘in voluntary liquidation’ in a scheduled bank.

• The Liquidator should intimate the Income Tax Department regarding the voluntary winding up.
• The liquidator should get a NOC from the Income Tax Department.

The liquidator shall submit a Preliminary Report to the corporate person within 45 days from the liquidation commencement date detailing:

• The capital structure of the corporate person
• The estimates of its assets and liabilities as on the liquidation commencement date based on the books of the corporate person
• Whether he intends to make any further inquiry in to any matter relating to the promotion, formation or failure of the corporate person or the conduct of the business thereof
• The proposed plan of action for carrying out the liquidation, including the timeline within which he proposes to carry it out and the estimated liquidation costs

• Claims by Operational Creditors to liquidator – Submission of proof of claim in Form B by post or electronic means
• Claims by Financial Creditors to liquidator – Submission of proof of claim in Form C by post or electronic means
• Claims by Workmen and Employees to liquidator – Submission of Proof of Claim by single employee or workmen in Form D by Post or Electronic means
• Claims by any other Stakeholders to liquidator – Submission of Proof of Claims in Form F either in Person, or by post or by electronic means.
• Claims by Secured Creditor to liquidator
• Claims through Bills of Exchange and Promissory Notes to liquidator

Operational Creditors	Financial Creditors	Workmen and Employees	Other Stakeholders	Secured Creditor
1. Records available with Information Utility	1. Records available with Information Utility	1. Records available with Information Utility	1. Records available with Information Utility	1. Records of security Interest available with Information Utility
2. Other relevant Documents : Contract supported by Invoice for payments	2. Financial Contract supported by Financial Statement	2. Proof/Contract of Employment for the period for which the claim is pending	2. Notice/Bank Statement claiming unpaid dues along with affidavit stating that the Bank Statement are true and valid.	2. Certificate of Registration of Charge issued by ROC
3. Any order by Court/Tribunal for Non-payment of Debt	3. Non-repayment of Debt as reflected in Financial Statements	3. Evidence of Notice/Document/Other Proof demanding payment of unpaid dues	3. Documentary /Electronic Evidence of Shareholding	3. Proof of Registration of Charge with the Central Registry of Securitization Asset Reconstruction And Security Interest of India
4. Financial Accounts of Company	4. Any order by Court/Tribunal for Non-payment of Debt.	4. Any order by Court/Tribunal for Non-payment of Debt	4. Any order by Court/Tribunal for Non-payment of Debt.	4. Any other relevant document

• The liquidator shall verify the claims submitted within 30 days from the last date for receipt of claims and may either admit or reject the claim
• Liquidator to prepare list of stakeholders within 45/15 days (Refer note) from the last date for receipt of claims along with:
  1. Amount of Claim admitted
  2. Extent of Debts-Secured or Unsecured
  3. Details of Stakeholders
  4. Proofs (Admitted or Rejected- In part or wholly rejected)

Note: As per Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) (Amendment) Regulations, 2022, where no claim from creditors has been received till the last date for receipt of claims, the liquidator shall prepare the list of stakeholders within 15 days from the last date for receipt of claims.

• Liquidator to value and sell the assets of the Corporate Person in the manner and mode approved by the Company.
• This is an ongoing process. There is no specific timeline mentioned in the act for realization of assets.
• Liquidator to deposit proceeds of distribution in Bank Account created in Step 7.

• Distribution of Proceeds within 30 days from the receipt of amount to the stakeholders.
• The Assets that cannot be sold by the liquidator can be distribute as such to the claimholders, however approval from the company and its members required for such distribution.

The Final Report of the liquidator should consist of the following details.

• Details of Audited Accounts of Liquidation
• A statement containing
  1. Disposal of Assets of the Company
  2. Disposal of the debts of the Company to the satisfaction of creditors
  3. Disposal of litigation pending against/Sufficient Provision for any obligation arising out of any pending litigation
• Statement of Sale of Assets showing
  1. Realized value
  2. Cost of Realization
  3. Manner & Mode of Sale
  4. Details of the person to whom the sale is made
  5. Explanation stating reasons for shortfall if the value of sale realized is less than the value is assigned
• The final report needs to be sent to,
  1. The Registrar of Companies by filing GNL-2.
  2. The Insolvency and Bankruptcy Board of India via Courier/E-mail.
  3. The Adjudicating Authority i. e NCLT via Physical Filing.

Where the affairs of the Company are completely wound up and its assets completely liquidated, the liquidator shall make an application to Adjudicating Authority for the dissolution of such company

• The Adjudicating Authority -NCLT shall on an application filed by the liquidator pass an order for the dissolution of the Company
• Copy of such order to be filed within 14 days with the Registrar of Companies (ROC).

Steps	Time limit
Step 1: Declaration of Solvency duly verified by an affidavit by majority of directors.	X (starting point)
Step 2: Board meeting & Step 3: General Meeting of shareholders/members (Approval of Winding up & other formalities) (Within 4 weeks i.e. 28 days of signing declaration of solvency)	X+28+7* *(In case of Creditors owning 2/3rd of the Value of Debt, approval of Creditors is required within 7 days)
Step 4: Intimation to ROC & Step 5: Intimation to IBBI (Within 7 days of approval of liquidation by way of special resolution)	X+28+7*+7
Step 6: Public Announcement by Liquidator (Within 5 days of approval of liquidation by way of special resolution)	X+28+5
Step 7: Opening of bank account for liquidation in the name of the company & Step 8: Intimation and NOC from Income Tax Department (Within 30 days of approval of liquidation by way of special resolution)	X+28+30
Step 9: Reporting by Liquidator (Within 45 days of approval of liquidation by way of special resolution)	X+28+45
Step 10: Collation of claims by liquidator (Within 30 days of approval of liquidation by way of special resolution)	X+28+30+30
Step 11: Verification of Claims & preparation of list of stakeholders by liquidator (for verification – within 30 days from last date for receipt of claims for preparation of final list – within 45/15 days from last date for receipt of claims)	X+28+30+45/15* *(where no claims received from creditors till last date, the final list to be prepared in 15 days instead of 45 days)
Step 12: Realization of Assets of the company (This is an ongoing process, no time limit has been mentioned)	NA
Step 13: Distribution of proceeds to claimholders (within 30 days from the receipt of amount)	30 days of receipt of amount
Step 14: Preparation of Final report by Liquidator (Upon completion of Liquidation process)	Upon completion of liquidation process (Refer Note)
Step 15: Application for Dissolution of company by Liquidator (Within 14 days of passing an order by NCLT)	Within 14 days of NCLT Order

The liquidator shall complete the liquidation process and submit the final report within,

• 270 days from the liquidation commencement date (approval of liquidation by members via special resolution) where the creditors have approved the resolution under section 59(3)(c) or Regulation 3(1)(c).
• 90 days from the liquidation commencement date (approval of liquidation by members via special resolution) in all other cases.