Strategies For Voluntary Winding-Up Of A Company And Legal Considerations
- IJLLR Journal
- 15 hours ago
- 2 min read
Udit Bhaskar, LLB, IIT Kharagpur
1. Definition and Legal Framework for Voluntary Winding Up
As per Section 2(94-A) of the Companies Act, 2013, “winding up” refers to the process of winding up under the Companies Act or liquidation under the Insolvency and Bankruptcy Code, 2016 (IBC), depending on applicability. Chapter XX of the Companies Act deals with the winding up of companies. Earlier, Part II of this chapter covered voluntary winding up, but it has since been omitted following the introduction of the IBC, 2016. However, Part III of Chapter XX, which outlines general provisions applicable to all modes of winding up, remains relevant and is also applicable to voluntary winding up under the IBC.
Section 59 of the Insolvency and Bankruptcy Code, 2016, along with the IBBI (Voluntary Liquidation Process) Regulations, 2017, provides the legal framework for voluntary liquidation of solvent corporate persons. It applies when a corporate person, having no defaults, intends to liquidate itself voluntarily. The process begins with a declaration by a majority of directors or designated partners, affirming that the entity has no debt or can repay all debts, and that the liquidation is not to defraud anyone. This is followed by submission of audited financials, an asset valuation (if any), and passing of a shareholders’ resolution to liquidate and appoint a liquidator. If the entity owes debts, creditor approval is required. The liquidator is responsible for realizing assets, inviting claims, maintaining records, and distributing proceeds. Upon completion, a final report is submitted to the National Company Law Tribunal (NCLT) for dissolution. The process is intended to ensure an orderly exit, safeguard stakeholder interests, and is time-bound, ideally concluding within one year.
2. Voluntary Liquidation under the IBC, 2016 – Section 59
Section 59 of the Insolvency and Bankruptcy Code, 2016 governs the process for voluntary liquidation of a corporate person—such as a company, LLP, or other entity with limited liability—that has not committed any default but intends to wind up its business in an orderly manner. This mechanism is distinct from insolvency proceedings triggered by financial distress, and it enables solvent entities to exit the market responsibly after settling their obligations.
Comments