Liquidation Process
What is the first step in the voluntary liquidation process under the IBC 2016?
The company must pass a special resolution for liquidation, and the declaration of solvency must be submitted to the Registrar of Companies (RoC).
What does IBC stand for?
Insolvency and Bankruptcy Code of 2016.
What does the term 'liquidator' refer to?
A liquidator is a person appointed to wind up the affairs of a company during liquidation.
In which scenario would a company consider voluntary liquidation?
A company may consider voluntary liquidation when it is no longer able to continue its business operations due to lack of profitability or because its owners wish to retire.
Which famous company underwent voluntary liquidation in India in recent years due to financial distress?
Jet Airways underwent voluntary liquidation due to financial distress and operational challenges.
How long does the voluntary liquidation process typically take under the IBC?
The voluntary liquidation process should generally be completed within one year, with an option for a six-month extension.
Which type of liquidation is applicable when the company is solvent?
Members' Voluntary Liquidation is for solvent companies under the IBC.
What is meant by ‘winding up’ in the context of voluntary liquidation?
Winding up is the process of dissolving a company by selling its assets, settling its debts, and distributing the remaining assets to shareholders.
What happens if a company's creditors do not agree to a voluntary liquidation?
If creditors do not agree, the company may have to go through corporate insolvency resolution process (CIRP) instead of voluntary liquidation.
A company in the manufacturing sector faces mounting losses due to unfavorable market conditions and high operational costs. The board of directors proposes voluntary liquidation, but there are disputes among shareholders regarding asset distribution. What should the liquidator do in this case?
The liquidator must follow the order of priority for the distribution of assets, which is prescribed under the IBC. If disputes persist among shareholders, the liquidator may seek guidance from the NCLT to resolve the issue.
Who appoints the liquidator in a voluntary liquidation under the IBC?
The company shareholders appoint the liquidator by a resolution.
What is the role of the Adjudicating Authority under the IBC?
The Adjudicating Authority (National Company Law Tribunal or NCLT) oversees the insolvency process, including voluntary liquidation applications.
What is the ‘order of priority’ when distributing assets during liquidation?
The order of priority for distribution in voluntary liquidation is: secured creditors, unsecured creditors, and then shareholders.
A company has been unable to generate profits for several years. Its shareholders decide to initiate voluntary liquidation. What document must the company submit to the Registrar of Companies (RoC)?
The company must submit a declaration of solvency to the Registrar of Companies (RoC), confirming that it can pay its debts in full within a specified period. If the company is solvent, members' voluntary liquidation is the most likely process.
Which prominent Indian telecommunications company faced voluntary liquidation after years of unsuccessful restructuring and a huge debt burden?
Reliance Communications (RCom) filed for voluntary liquidation after mounting debts and attempts at restructuring failed.
What happens if a company fails to complete the liquidation process within the prescribed timeline under the IBC?
The liquidator can apply to the Adjudicating Authority (NCLT) for an extension, but if liquidation is not completed, the company may face corporate insolvency proceedings.
What does a declaration of solvency mean in voluntary liquidation?
A declaration of solvency is a statement from the company’s directors confirming that the company is solvent and able to pay off its debts in full within a specified period.
What does ‘insolvency’ mean under the IBC?
Insolvency refers to the inability of a company to pay its debts as they fall due or when the company’s liabilities exceed its assets.
If a company’s voluntary liquidation proceedings are challenged by creditors, which authority would oversee the dispute resolution under the IBC?
The National Company Law Tribunal (NCLT) is the authority that resolves disputes in voluntary liquidation cases under the IBC
A food processing company in India voluntarily decides to liquidate. However, its employee pension funds have not been paid for several months. What should the liquidator do to settle these claims during the liquidation process?
The liquidator must ensure that all employee dues, including pension funds, are settled in accordance with the order of priority. Employee claims are given priority over unsecured creditors, so the liquidator must pay pension dues before others.
What must the liquidator do with the company’s assets during voluntary liquidation?
The liquidator must sell the company’s assets and distribute the proceeds to the creditors in accordance with the order of priority under the IBC.
What is creditor’s voluntary liquidation under the IBC?
Creditors' Voluntary Liquidation occurs when a company is insolvent and its creditors initiate the liquidation process after the company’s shareholders pass a resolution.
What is the role of the Registrar of Companies (RoC) in voluntary liquidation?
The RoC must be notified once a resolution for voluntary liquidation is passed, and it will oversee the filing of documents such as the declaration of solvency.
If a company initiates voluntary liquidation but later realizes that it may be able to recover and continue operations, can the process be reversed?
No, once voluntary liquidation has started, it cannot be reversed unless all creditors agree to a settlement and the NCLT approves the cessation of liquidatio