Navigating the Waters of Company Liquidation: A Comprehensive Guide

Introduced in 2016, the Insolvency and Bankruptcy Code (IBC) guides the meticulous process of liquidation of a company in India. This legally regulated procedure aims to provide a systematic resolution for companies grappling with insurmountable financial challenges. The structured approach includes various well-defined steps; it engrosses multiple stakeholders to guarantee an equitable distribution of assets among both creditors and stakeholders.

Initiation of Liquidation:

When a company cannot fulfill its financial obligations, it often embarks on the journey of liquidation. Factors such as accumulated debts, operational inefficiencies or economic downturns may contribute to this state; they render further operation economically unfeasible. Typically, in such instances,  the company’s creditors set the process into motion by approaching National Company Law Tribunal (NCLT) with an order request for initiating liquidation of the company.

NCLT Approval and Liquidator Appointment:

After the NCLT approves the liquidation petition – a pivotal step in this process: they appoint a liquidator to manage and oversee all aspects of the company’s dissolution. Frequently, it is not just any professional; rather an entrusted resolution expert takes charge by assuming responsibility for controlling assets belonging to the firm, valuing them accurately–and ultimately executing their sale. The overarching goal? Generating funds with potential utility towards settling outstanding debts held by said company.

Maximising Asset Value:

The role of the liquidator is crucial in maximising the value of the company’s assets during the liquidation process. This involves assessing the market value of assets and exploring opportunities to sell the company, along with its assets, as a going concern. The liquidator’s aim is to obtain the highest possible value from the asset realisation, enabling a more substantial distribution to creditors and stakeholders.

Types of Company Liquidation:

Voluntary Liquidation of Company:

a) Members’ Voluntary Liquidation (MVL):

MVL is initiated when a company is solvent, and shareholders decide to wind it down. Typically, this happens when directors believe the company has fulfilled its purpose or is no longer economically viable. The primary objective is to return surplus funds to shareholders after settling all debts and liabilities.

b) Creditors’ Voluntary Liquidation (CVL):

CVL comes into play when a company is insolvent, and its directors acknowledge its inability to meet financial obligations. Directors, shareholders, or creditors can initiate this process to sell off assets and use the proceeds to settle creditors fairly and equitably.

c) Compulsory Liquidation of Company:

Compulsory liquidation is a court-ordered process initiated by external parties, such as creditors or regulatory authorities, when a company cannot meet its debts. The court intervenes to protect the interests of creditors and stakeholders by appointing an official liquidator to manage the liquidation process.

Step-by-Step Procedure:

Liquidator Appointment:

• The resolution specialist, initially chosen, becomes the liquidator, receiving full authority and responsibilities for the process.

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.

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.

Reports:

The liquidator drafts various documents, including asset memoranda, preliminary and final reports, as well as thorough asset sales and financials. These reports are delivered to the appropriate authorities.

Liquidation Asset:

Documenting all liquidation assets, which include different kinds of property, marks the end of the process.

Ancoraa Resolution’s Role:

The decision to liquidate a company is undoubtedly challenging, and Ancoraa Resolution plays a crucial role in guiding entities through this complex journey. As a steadfast partner, Ancoraa Resolution offers a seamless platform for communication, documentation, asset realisation, and equitable distribution. The commitment to transparency, legal compliance, and expert assistance ensures that the journey through company liquidation is handled with care and integrity. 

Conclusion

Undeniably, navigating the challenging decision to liquidate a company requires precise guidance and support. As a steadfast service provider, Ancoraa Resolution offers an impeccable platform for communication; it facilitates seamless documentation, asset realisation, and ultimately equitable distribution. Additionally, with the power of their Insolvency technology called Rezolution Engine, the entire resolution process is smoothly run in compliance with the Code.