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Voluntary Liquidation of a Company

Voluntary Liquidation of a Company - Close responsibly. Strike off your company with confidence. Looking to close your business the right way? Opt for voluntary liquidation to wind up your company efficiently and legally. Our experts handle the entire process from drafting resolutions and settling liabilities to filing with the ROC to ensure a hassle-free exit. Get professional guidance and complete compliance from start to finish.

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Voluntary Liquidation of a Company in India

Voluntary liquidation is a legally regulated process that allows a solvent company in India to formally wind up its affairs and dissolve itself in an organized and transparent manner. Unlike compulsory liquidation triggered by financial distress, voluntary liquidation is initiated by the company’s shareholders or directors when the business is no longer viable or its objectives have been fulfilled. The process is governed by the Insolvency and Bankruptcy Code (IBC), 2016, and the Companies Act, 2013, to ensure that all outstanding liabilities are cleared, assets are distributed fairly among stakeholders, and legal compliance is maintained throughout. The process commences with a declaration of solvency and a special resolution by the members, followed by the appointment of a liquidator, public announcements, asset realization, claim settlement, and final dissolution by the National Company Law Tribunal (NCLT).

What is Voluntary Liquidation?

Voluntary liquidation is a process initiated by a company to dissolve itself. It occurs when the company is solvent, meaning it can pay off its debts in full. The process involves the sale of assets, the settlement of liabilities, and the distribution of any remaining assets among the stakeholders.

Legal Frameworks Governing Voluntary Liquidation in India

The legal provisions for voluntary liquidation are encapsulated under:

Insolvency and Bankruptcy Code (IBC), 2016
The Companies Act, 2013
Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017

Types of Voluntary Liquidation

There are two types of voluntary liquidation:

Members' Voluntary Liquidation (MVL): Initiated by the shareholders when the company is solvent.
Creditors' Voluntary Liquidation (CVL): Initiated when the company is insolvent but the creditors agree to the liquidation.

Pre-Requisites for Initiating Voluntary Liquidation

To initiate voluntary liquidation, a company must meet the following conditions:

Solvency Declaration: The directors must declare that the company is solvent and can pay its debts within 12 months from the commencement date of the liquidation process.
Special Resolution: A special resolution must be passed by the company’s members approving the liquidation process.
Appointment of Insolvency Professional: A qualified insolvency professional is appointed as the liquidator.
Public Announcement: A public notice of liquidation is made within five days of the resolution.

Forms Required for Voluntary Liquidation under the Companies Act, 2013

The following documents must be submitted during the voluntary liquidation process:

S. No.	Form Name	Purpose
1.	Form MGT 14	To file the resolution with the Registrar of Companies (RoC), a copy of the special resolution and explanatory statement must be provided.
2.	Form B	For proof of claims by operational creditors (excluding workers and employees).
3.	Form C	For proof of claims by financial creditors.
4.	Form D	For proof of claims by workers or employees.
5.	Form E	For claims by authorized representatives of workers or employees.
6.	Form F	For claims by other stakeholders.
7.	Form GNL-2	Submission of documents with the RoC after finalizing the liquidation process.
8.	Form NCLT 1	For application to the National Company Law Tribunal (NCLT), along with the required documents.
9.	Form INC 28	This is for filing confirmation of the order to the RoC after receiving NCLT’s approval.
10.	Form 22	This is for filing confirmation of the order to the RoC in the case of Limited Liability Partnerships (LLPs).

Voluntary Liquidation Process

1. Voluntary Liquidation Process under The Companies Act, 2013

Section 248(2) of the Companies Act, 2013, governs the process for formally shutting down a company and removing its name from the register. After fulfilling all the liabilities, passing a special resolution with a 75% majority from its members, the process is initiated as follows:

Step 1: Conduct a Board Meeting

A board meeting must be convened to settle all the company's debts and liabilities, close bank accounts, and prepare the latest financial statement following closure. Form STK-2 shall be filed with the Registrar of Companies (RoC).

Step 2: Director's Declaration

A declaration stating that the company has no government dues, certified by a Chartered Accountant, Cost Accountant, or Company Secretary, must be prepared.

Step 3: Public Notice by ROC

RoC will issue a public notice on the official website of the MCA, the Official Gazette, and two newspapers (one in English and one in the vernacular language), with a 30-day period for claims and objections.

Step 5: Approval and Strike Off

After the notice period, ROC strikes off the company's name and issues a dissolution notice in the Official Gazette.

2. Voluntary Liquidation Process under IBC

The voluntary liquidation process under Section 59 of the Insolvency and Bankruptcy Code (IBC), 2016, in the IBBI (Voluntary Liquidation Process) Regulations, 2017, provides a structured pathway for solvent companies to wind up their affairs in an orderly manner. The process is as follows:

Step 1: Declaration of Solvency

The process begins with a majority of the directors or designated partners making a declaration, verified by an affidavit, stating that they have thoroughly examined the company's affairs and believe that either the company has no debts or it will be able to pay its debts in full from the proceeds of assets to be sold in the voluntary liquidation.

Step 2: Special Resolution by Shareholders

Within four weeks of the declaration, the company must convene a general meeting where shareholders pass a special resolution approving the voluntary liquidation and appoint an Insolvency Professional as the liquidator. If the company owes any debts, two-thirds of the creditors must approve the resolution within seven days.

Step 3: Public Announcement and Claims Submission

The appointed liquidator is required to make a public announcement within five days of their appointment, inviting stakeholders to submit their claims within 30 days. This announcement is published in newspapers and on the company's website to provide stakeholders with an opportunity to participate in the process.

Step 4: Verification and Admission of Claims

The liquidator verifies the submitted claims and prepares a list of stakeholders, categorizing them based on the nature and priority of their claims.

Step 5: Realization of Assets and Distribution

The liquidator proceeds to realize the company's assets and distributes the proceeds in accordance with the priority laid out in Section 53 of the IBC. This includes settling dues to secured creditors, workmen, employees, and other stakeholders. Any surplus remaining after settling all liabilities is distributed among the shareholders.

Step 6: Final Report and Dissolution Application

Once the liquidation process is complete, the liquidator prepares a final report that details the liquidation proceedings and accounts. This report is submitted to the shareholders and filed with the Registrar of Companies (ROC) and the Insolvency and Bankruptcy Board of India (IBBI). Subsequently, the liquidator applies to the National Company Law Tribunal (NCLT) for the dissolution of the company.

Step 7: Dissolution Order

If satisfied with the liquidation process, the NCLT passes an order for the dissolution of the company. A copy of this order is then filed with the ROC to officially strike off the company.

Tax Implications During Voluntary Liquidation

Capital Gains Tax: If assets are sold during liquidation, capital gains tax may apply based on the nature and duration of ownership.
GST Liabilities: Outstanding GST dues must be settled before being distributed to stakeholders.
Corporate Tax: Any profits made during the liquidation process are subject to corporate income tax.
TDS and Withholding Tax: Taxes deducted at source must be appropriately remitted before final distribution.
NOC from Tax Authorities: Obtaining a No Objection Certificate from the relevant tax departments is mandatory to ensure compliance.

Checklist for Liquidation under IBC, 2016 and Companies Act, 2013

Declaration of Solvency
Passing of Special Resolution
Appointment of Insolvency Professional
Public Announcement of Liquidation
Verification of Claims
Realization and Distribution of Assets
Filing Final Report with ROC and IBBI
Application to NCLT for Dissolution
Issuance of Dissolution Order
Filing with ROC

Why Choose Kanakkupillai for Company Liquidation Services?

Liquidating a company can be a challenging process, requiring professional guidance and meticulous handling. Kanakkupillai offers reliable, transparent, and efficient liquidation services. We provide:

Comprehensive Support: We handle the entire process from start to finish, including documentation, forms submission, with both ROC and NCLT and coordination with legal bodies.
Legal Expertise and Compliance: Our team is well-versed in the Companies Act, 2013, and Insolvency and Bankruptcy Code (IBC), 2016, and ensures compliance with legal standards.
Professional Creditor Management: We handle creditor meetings, debt claims, and dispute resolution with diligence to protect the interests of the company.
Confidentiality and Data Security: We maintain the utmost confidentiality and safeguard your financial data throughout the process.
Transparent Pricing: Our pricing structure is upfront and fair, with no hidden charges.
Clear Communication: We keep you informed at every stage, address your questions promptly, and ensure the process remains stress-free.

Frequently Asked Questions

Is voluntary liquidation the same as striking off a company under Section 248 of the Companies Act, 2013? +

No. Striking off under Section 248 is a simpler process for companies with no liabilities and no active business. Voluntary liquidation under the IBC is a formal process for solvent companies that wish to close, settling all liabilities in an orderly, court-monitored manner.

When should a company choose IBC over the Companies Act for liquidation? +

Go for liquidation under the IBC route if the company has assets, liabilities, or wants a regulated, transparent process. The Companies Act, 2013 route via STK-2 is suitable only if the company has no liabilities, no pending litigations, and no assets.

Can startups or dormant companies go for voluntary liquidation? +

Yes. Many startups or holding entities utilize voluntary liquidation under the IBC when they have fulfilled their purpose, wish to exit India, or seek to avoid ongoing compliance burdens despite being solvent.

What role does the Insolvency Professional play during voluntary liquidation? +

The Insolvency Professional (IP) becomes the liquidator. They take charge of the company, verify claims, sell assets, manage compliance filings, and ensure legal dissolution through NCLT.

Do shareholders receive funds after liquidation? +

Yes, but only after all claims, including taxes, employee dues, and creditors' claims, are paid. Shareholders receive any remaining proceeds, if available, as part of the final distribution.

What happens if there are pending government dues during liquidation? +

Government dues such as GST, Income Tax, and PF must be cleared. The liquidation process cannot be concluded unless these matters are settled or properly accounted for in the final report.

Is creditor approval mandatory for voluntary liquidation? +

Only if the company owes debts, in such cases, at least 2/3 in value of creditors must approve the resolution within 7 days. If there are no debts, this step isn’t required.

Does voluntary liquidation impact directors personally? +

Not usually. However, directors must provide an honest solvency declaration. If this is found to be false or misleading, personal liability or penal action may arise.

Can liquidation be challenged by stakeholders? +

Yes, if stakeholders such as creditors and employees believe the process is unfair, they can raise objections before the NCLT during claim verification or final reporting stages.