New Delhi: The Insolvency and Bankruptcy Board of India, or IBBI, on Tuesday sought public comments on draft rules outlining the process that companies can follow for voluntary liquidation under the Insolvency and Bankruptcy Code, 2016.
A company that has not defaulted on loans may initiate voluntary liquidation subject to certain conditions, according to the bankruptcy code. In case of default or debt outstanding, the company should be able to pay it off from the sale of assets.
In case of voluntary liquidation, the law also requires shareholders of the company to pass a special resolution in a general meeting requiring the company to be liquidated voluntarily and appointing an insolvency professional to act as the liquidator. The consent of the creditors needs to be obtained to voluntarily liquidate a company in case of debt.
A working group on bankruptcy has submitted draft regulations for voluntary liquidation of companies. The draft rules for fast-track corporate insolvency resolution are yet to be finalized by the group.
As of press time, a copy of the draft regulations was not available in the public domain.
The draft regulations pertaining to voluntary liquidation have been put up for stakeholder feedback, the last date for submission of which is 8 March.
The working group had earlier developed draft regulations for corporate insolvency resolution and liquidation. The insolvency board, in its meeting scheduled for 16-17 March, will discuss the public feedback and finalize regulations for fast-track resolution and voluntary liquidation, taking stakeholder views into consideration, Mint had reported citing a person familiar with the development.
Once finalized, the regulations for fast-track insolvency resolution and voluntary liquidation will complete the set of rules for corporate insolvency.
According to the liquidation rules notified earlier, a company is required to go for liquidation in the occurrence of a default which cannot be resolved through the corporate insolvency resolution process.
M.S. Sahoo, chairperson of the bankruptcy board, cited three conditions which need to be fulfilled by a company going for voluntary liquidation.
“First, the company should be solvent. Second, the directors of the company must give a declaration that the company is solvent and will be able to pay the dues of the creditors and third, the creditors should approve the liquidation by two thirds majority."