Apart from permitting initiation of insolvency resolution process for highly indebted companies that are unable to pay back their debts, the Insolvency and Bankruptcy Code, 2016 (IBC) also allows for ‘voluntary liquidation’ for companies who are solvent and have the capacity to repay all their dues. As on September 11, as many as 28 companies filed for voluntary liquidation under the provisions of the IBC.
Among the companies that filed for voluntary liquidation are — Wadia BSN India Ltd, HSBC Global Shared Services (India) Pvt Ltd, IL&FS Capital Advisors, Khel Gaon Estates Pvt Ltd and Ujjivan Social Services Foundation.
Chapter V of the IBC provides that “a corporate person who intends to liquidate itself voluntarily and has not committed any default may initiate voluntary liquidation proceedings under the provisions of this Chapter.” This option is available to companies which either have zero debt or are confident of meeting all the debt obligations from the sale of assets of the firm during liquidation.
The law requires “majority of directors” of a company to initiate the process of voluntary liquidation. Such a request should be accompanied by an affidavit stating that the directors “(i) 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 voluntary liquidation; and (ii) the company is not being liquidated to defraud any person.”
The rules require that a company declaring for voluntary liquidation should, within four weeks, call for a special resolution of the members of the company and appoint an insolvency professional to act as the liquidator. In case 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 seven days.
“We do not want to continue with the company and since voluntary liquidation is only possible under the Bankruptcy Code now, the company has announced it,” said Sunil Kumar Agarwal, liquidator for Shree Ganraj Coal Transport Pvt Ltd, which made a public announcement on Monday for voluntary liquidation, seeking submission of claims by September 23.
The data from the Insolvency and Bankruptcy Board of India (IBBI) shows that between April 7 and September 11, a total of 28 companies initiated the process of voluntary liquidation.
“The earlier provisions of winding up a firm have now shifted to the IBC from the Companies Act. If a company does not have any asset or liability, then it can give a strike out notice. If there are any liabilities, then the IBC requires the companies wanting to wind up to appoint an official liquidator, call for creditor claims and then proceed for liquidation,” said an analyst working on such cases of voluntary liquidation.