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NCLT procedure for filing liquidation

Liquidation is the process of winding up of a firm or corporation by selling off its free assets to convert them into cash to pay off the unsecured creditors. The proceedings can be initiated under the Insolvency and Bankruptcy Code of India, 2016 filed under the National Company Law Tribunal.
Written by:
Prachi Darji
Published on
13-Sep-19

NCLT i.e. National Company Law Tribunal is a Quasi-Judicial body which was established by the government of India under section 408 of the Companies Act, 2013(1). It is an adjudicating body, which is now recognised by the IBC, 2016, and deals with specific matters pertaining to company’s law. The tribunal was established for the speedy and just disposal of matters, to reduce the grievances of the creditors and other aggrieved parties. Liquidation proceedings can be filed under the NCLT. To file an application the following procedure is followed. Let’s study in detail:

 

Under What circumstances shall NCLT pass an order of liquidation of a corporate debtor under the Insolvency and Bankruptcy Code 2016?

The Insolvency and Bankruptcy code 2016(2) provides for the liquidation of the assets of the company. Here the liquidation process is initiated after considerable amount of time has been invested in the Insolvency process. Liquidation in normal terminology means selling off assets of the company to infer maximum amount of profit to be distributed among the creditors. In the Code Under section 33, the National Company Law Tribunal(3) can order for liquidation on the following grounds:-

  • If there is non-receipt of a valid resolution plan

  • If there is non-compliance of order 37 and 38 of the code and regulations stated there in

  • If the committee of creditors decides for the liquidation process before confirming the resolution plan

  • If the corporate debtor himself contravenes with any of the terms specified in the resolution plan

Under this section, the NCLT makes a public announcement for the same, within 5 days of such announcement, a Liquidator is to be appointed. Here, until a Liquidator is appointed the Resolution Professional will be the Liquidator until declined by the NCLT.

After the public announcement is made and the liquidator is appointed, another public announcement is made by the Liquidator calling for claims of creditors and stakeholders, within 30 days from the date of which such an announcement is made. A moratorium period begins after such an announcement. This means that no suit or legal proceedings can be initiated by or against the corporate debtor during the ongoing proceedings.

During the entire process the entire management of the company stands dissolved, the Liquidator takes over all the assets of the company and initiates the liquidation process after consolidation and verification of all claims of the creditors.

What are the powers and duties of liquidator appointed for the purpose of liquidation under the Insolvency and Bankruptcy Code 2016?

A Liquidator is appointed by the NCLT within 5 days of the public announcement pertaining to the initiation of the Liquidation process. There are certain powers vested in the hands of the liquidator under the Code. The powers and duties are as follows:-

  • The duty to verify all the claims of the creditors

  • The duty to take custody of all assets and preservation of any such assets of the creditors So that maximum value can be enhanced after the auction during the liquidation process.

  • The duty to frame a strategy to sell off all the movable as well as the immovable estates and assets of the creditor to the maximum value of its worth

  • The power to obtain any professional assistance for the process of liquidation

  • The power and duty to invite and settle all claims of the creditors and to distribute the proceeds

  • The duty to institute and defend any suit on behalf of the corporate debtor

  • The power to investigate the financial affairs of the corporate debtor and determine any undervalued or preferential transactions

  • The duty to submit the necessary reports about the proceedings 15 days after the end of each quarterly to the adjudicating authority i.e. the NCLT

  • The power to consult the stakeholders

  • Any other actions that need to be performed as specified by the Board specifically regarding the matter

To whom does an appeal lie from the order of liquidator with regard to the determination of the valuation of claims and within how many days can an appeal be preferred?

The liquidator has to either admit or reject the claims put forward by the creditors within 7 days. If you are aggrieved by the decision of the corporate debtor you can file an appeal against the decision in the NCLT within 14 days of the decision.

When can a corporate debtor initiate voluntary liquidation proceedings? What procedure has to be followed for voluntary liquidation?

A Corporate Debtor can file for a voluntary liquidation under Section 7 and Section 8 of the Insolvency and Bankruptcy Code which was earlier mentioned in section 304- section 313 of the Company’s Act 2013. He can initiate such proceedings against himself in the following two conditions:-

  • If he has never defaulted in paying his debts and dues since incorporation

  • If he is a solvent

There are certain procedural conditions which the corporate debtor has to follow to initiate such proceedings.

  1. Declaration by majority of its directors to the Registrar of the companies, which says that:-

  • Either they are free of debt; or

  • The debt can be cleared off by the liquidation process, i.e. realisation of the assets.

The Declaration consists of the following two elements: -

  • Not liquidating to defraud any individual. Creditor or stakeholder. The declaration shall also be accompanied by the following documents. (a) Audited financial statement of the previous 2 years. (b) Valuation of the assets. (c) List of creditors and the amount which is due.

  • Within 4 weeks of declaration the company has to commence a General meeting of the stakeholders, directors and members. In the General meeting a special resolution has to be passed where the majority votes for initiation of voluntary liquidation process. Then after passing the resolution, they have to name a liquidator for initiation of the process or The Memorandum of Association of the company says that the date and day of liquidation process was specified hence the liquidation should commence.

  1. After the resolution, the creditors have to approve the resolution in a reasonable time period.

  2. Within 7 days of Approval by Creditors notice of information has to be given to the Registrar of the company and the IBBI with a copy of the resolution.

  3. After this, the commencement of voluntary liquidation occurs.

External Links:

[1] Companies Act, 2013: A detailed view of the Companies Act, 2013

[2] The insolvency and bankruptcy code, 2016: A sitemap to the Insolvency and Bankruptcy Board of India

[3] The National Company Law Tribunal: A sitemap to the National Company Law Tribunal