Liquidating a company is a complex and challenging process that requires time and expertise. Whether you are unable to pay the debts of your company or struggling to get into the market, learning every step of the liquidation process helps you close the business down confidently. This will explore the process of liquidation of a company and the step-by-step process according to Indian legal frameworks.
What is Company Liquidation?
A company liquidation is the process of closing down a business or entity of a firm in an organized and legal manner. It involves the sale of company assets, paying all the debts, and sharing the remaining funds and assets with company shareholders and owners. The liquidation of a company is possible for different reasons, such as excessive debt or changes in company strategy or business direction.
Types of Company Liquidation:
The following are the most common types of company liquidation:
Compulsory Liquidation:
Compulsory liquidation, also known as involuntary liquidation, is possible when a company is forced to close its business due to external factors, for example, through court orders or the creditor’s insistence. However, authorities are often involved in liquidation when a company is unable to pay its debts. In this process, the court assigns an official liquidator in order to protect the interests of creditors and shareholders.
Voluntary Liquidation:
Voluntary liquidation has two further forms of liquidation:
Members’ voluntary liquidation (MVL):
Members’ voluntary liquidation happens when the company has enough assets to pay its liabilities, but the shareholders still decide to quit. The primary objective of MVL is to return any surplus funds to shareholders after paying all the obligations, which is only possible if 75% of the company’s members agree to liquidate.
Creditors’ Voluntary Liquidation (CVL):
Creditors’ voluntary liquidation is followed when a company is insolvent and cannot pay its due debts. In CVL, the board of directors, shareholders, or creditors commence the liquidation process after getting at least 66% of votes. The primary objective of this voluntary liquidation is to realize the company’s assets and sell them in order to pay creditors according to a legal hierarchy of payment.
Company Liquidation Process in India
In India, liquidation of the company begins under Section 33 of the Insolvency and Bankruptcy Code, 2016 (IBC). If a plan is not received by the Adjudicating Authority (AA) or if the AA rejects a settlement plan, the solvency process can begin.
The Judicial Authority issues a liquidation order for the business debt in the absence of a resolution application or if it fails to meet the conditions of Section 31 of the IBC.
Step-by-Step Procedure:
Step 1 – Liquidator Appointment:
The resolution specialist who was initially chosen is now the liquidator. The liquidator receives full authority and all responsibilities.
Step 2 – Announcement, Claims, and Valuation:
A public notice inviting creditors to submit claims is published following the liquidation order. The liquidator collects these claims within 30 days, and valuers are appointed within 7 days.
Step 3 – Claims Verification and Approval:
Within 30 days, the liquidator investigates claims. Appeals are possible, and claims may be accepted or rejected. The liquidator also determines the number of claims.
Step 3(b) – Reports:
The liquidator drafts a number of documents, such as asset memoranda, preliminary and final reports, as well as thorough asset sales and financials. These reports are delivered to the appropriate authorities.
Step 4 – Liquidation Asset:
Documenting all liquidation assets, which include different kinds of property, brings the process to an end.
Conclusion:
The decision to liquidate the company is challenging, but with the right support and guidance, the process can be smoother and done more confidently. That’s where Ancoraa Resolution comes in, which stands as a steadfast partner, offering a seamless platform for communication, documentation, asset realization, and equitable distribution.