Insolvency and Bankruptcy Code, 2016: Voluntary Liquidation of Corporate Person

Voluntary liquidation is a process by which a corporate person is wound up by its own directors or shareholders. It is a legal process that is governed by the IBC.

Initiation of Voluntary Liquidation

Voluntary liquidation can be initiated by:

  • A majority of the directors of the corporate person.
  • A majority of the shareholders of the corporate person.

Steps involved in Voluntary Liquidation

The following are the steps involved in voluntary liquidation:

  1. The directors or shareholders of the corporate person pass a resolution to initiate voluntary liquidation.
  2. The corporate person files an application for voluntary liquidation with the Registrar of Companies (ROC).
  3. The ROC appoints a liquidator to oversee the liquidation process.
  4. The liquidator takes possession of the corporate person’s assets and investigates its affairs.
  5. The liquidator sells the corporate person’s assets and distributes the proceeds to the creditors in accordance with the IBC.
  6. The liquidator files a final report with the ROC and the process of voluntary liquidation is completed.

Advantages of Voluntary Liquidation

The following are some of the advantages of voluntary liquidation:

  • It is a quicker and more efficient way to wind up a corporate person than the corporate insolvency resolution process (CIRP).
  • It is less expensive than the CIRP.
  • It is more likely to be approved by the creditors.

Disadvantages of Voluntary Liquidation

The following are some of the disadvantages of voluntary liquidation:

  • The creditors may not get as much money as they would in the CIRP.
  • The corporate person’s assets may be sold at a lower price than their market value.
  • The corporate person’s employees may lose their jobs.

MCQs on Voluntary Liquidation of Corporate Person:

  1. What is voluntary liquidation?
    • A process by which a corporate person is wound up by its own directors or shareholders.
  2. Who can initiate voluntary liquidation?
    • A majority of the directors of the corporate person or a majority of the shareholders of the corporate person.
  3. What are the steps involved in voluntary liquidation?
    • The directors or shareholders of the corporate person pass a resolution to initiate voluntary liquidation.
    • The corporate person files an application for voluntary liquidation with the ROC.
    • The ROC appoints a liquidator to oversee the liquidation process.
    • The liquidator takes possession of the corporate person’s assets and investigates its affairs.
    • The liquidator sells the corporate person’s assets and distributes the proceeds to the creditors in accordance with the IBC.
    • The liquidator files a final report with the ROC and the process of voluntary liquidation is completed.