Every Life Has an End

Every new life starts with birth and ends with death. As like we know that every corporate entity starts with incorporation and ends with liquidation / winding up. The end is inevitable in the circle of life which may happen in any kind of situation. Though it is not a happy process, we have to learn about it as a Professional

How to liquidate a company is what we will be seeing in this edition along with our Legal terms and News Bites related to notifications by MCA, SEBI, RBI and IT Department follows the articles.

 Saranya Deivasigamani,
CEO

Process of Windingup

We have already seen in our 17th Edition of ZappyNews in January, 2017 about the Insolvency and Bankruptcy Board of India has notified the Corporate Voluntary Liquidation Process Regulations, 2017 that came in effect from 1st April 2017. These regulations have removed the recently faced ambiguity in winding up and liquidation of corporate persons after the recent amendments in Companies Act, 2013 subsequent to section 255 of Insolvency and Bankruptcy Code being notified. In this edition, we will be seeing about the key features of the code and the procedure for liquidation of Companies.

The key features of the same are:

1. A corporate person with no default can initiate the voluntary liquidation process.

2. The winding up process shall commence on the date on which a special resolution is passed by the members/partners of the corporate person to liquidate the corporate person and appoint an Insolvency Professional (IP) to act as the liquidator. On the appointment of a liquidator, the corporate person shall cease to carry on its business.

3. For initiating voluntary liquidation, the majority of Directors and Designated Partners of the corporate person have to make a declaration to the effect that:

• The corporate person has no debts or it will be able to pay its debts in full from the proceeds of the assets to be sold in the voluntary liquidation; and
• The corporate person is not being liquidated to defraud any person.

4. Eligibility criteria for appointing an IP as a liquidator.

5. It specifies and provides for:

• The manner and content of the public announcement of the appointment of a liquidator.
• Invitation of claims from the stakeholders.
• Receipt and verification of claims.
• Various reports and registers to be made and preserved by the liquidator.
• Realisation and distribution of the assets of the corporate person.

6. It also provides for the manner and procedure for dealing with extortionate credit transactions, unclaimed proceeds of liquidation/undistributed assets, detection of fraud, etc.

7. The liquidator is obliged to preserve a physical/electronic copy of the reports, registers and books of accounts for at least eight years after the dissolution of the corporate person, either with himself or with an information utility.

8. If the corporate person is unable to oblige point 3 above, the liquidator has to make an application to the National Company Law Tribunal (NCLT) to suspend the process of liquidation and pass any order as he/she deems fit.

9. On the completion of the liquidation process, the liquidator shall prepare and submit the final report to the NCLT and after the affairs of the corporate person are wound up, he/she will make an application to NCLT for dissolution of the corporate person.

Process of voluntary winding up

The Winding up of a Company can also be done voluntarily by the members of the Company, if:

• The Company in general meeting passes a special resolution requiring the Company to be wound up voluntarily as a result of the expiry of its duration, if any, fixed by its Articles of Association or on the occurrence of any event in respect of which the Articles of Association provide that the company should be dissolved.

The Voluntary winding up process applies where the directors and shareholders decide to cease trading their solvent limited company.

Step – 1 convene a board meeting with two Directors or with a majority of Directors:

a. Pass a resolution for Voluntary Liquidation of the Company.

b. Prepare a declaration from majority of the directors of the company verified by an affidavit stating that—

i. They have made a full inquiry into the affairs of the company and have formed an opinion that either the company has no debt or that it will be able to pay its debts in full from the proceeds of assets to be sold in the voluntary liquidation; and

ii. The company is not being liquidated to defraud any person – section 59(3) (a) of The Insolvency Code, 2016.

c. File declaration in e-form GNL-2.

d. Attachment with Declaration:

i. Audited financial statements and record of business operations of the corporate person for the previous two years or for the period since its incorporation, whichever is later.

ii. A report of the valuation of the assets of the corporate person, if any, prepared by a registered valuer.

Step – 2 convene a general meeting: Within 4 weeks of passing of above said declaration, hold the meeting of Shareholders for the following purposes:

a. To Pass a Special Resolution for approving the proposal of Voluntary Liquidation of the Company.

b. Appoint an insolvency professional to act as the liquidator. Resolution should contain the terms and conditions of the appointment of the insolvency professional, including the remuneration due to him.

c. File resolution in e-form MGT-14.

Step – 3 approval of creditors, if company owes DEBT:

a. If the company owes any debt to any person, creditors representing two-thirds in value of the debt of the company shall approve of the resolution passed above by the shareholders within seven days of passing of such special resolution.

b. Approval can be done by Consent of 2/3 of creditors in writing in General Meeting.

c. Commencement of voluntary liquidation shall be deemed to be from the date of passing of the resolution.

Step – 4 public announcement by the liquidator:

The liquidator shall make a public announcement in Form A of Schedule I within 5 days from his/her appointment .

a. The public announcement shall-

i. Call upon stakeholders to submit their claims as on the liquidation commencement date (LCD); and

ii. Provide the last date for submission of claim, which shall be 30 days from the LCD.

b. The announcement shall be published-

i. In one English and one regional language newspaper with wide circulation at the location of the registered office and principal office, if any, of the corporate person and any other location where in the opinion of the liquidator, the corporate person conducts material business operations;

ii. On the website, if any, of the corporate person; and

iii. On the website, if any, designated by the Board for this purpose.

Step – 5 proceedings by liquidator:

The liquidator shall submit a Preliminary Report to the Company within 45 days from the LCD, detailing as given below. The liquidator shall preserve a physical as well as an electronic copy of the reports for eight years after the dissolution of the corporate person.

a. The capital structure of the Company

b. The estimates of its assets and liabilities as on the LCD based on the books of the Company

c. Whether he/she intends to make any further inquiry into any matter relating to the promotion, formation or failure of the Company or the conduct of the business thereof; and

d. The proposed plan of action for carrying out the liquidation, including the timeline within which he/she proposes to carry it out and the estimated liquidation costs.

e. Maintenance of Registers and Books of Account

f. The liquidator shall verify the claims submitted within thirty days from the last date for receipt of claims and may either admit or reject the claim, in whole or in part, as the case may be, as per section 40 of the Code.

g. A creditor may appeal to the adjudicating authority against the decision of the liquidator as per section 42 of the Code.

h. The liquidator shall prepare the list of stakeholders within forty-five days from the last date for receipt of claims.

i. The liquidator shall open a bank account in the name of the corporate person followed by the words ‘in voluntary liquidation’, in a scheduled bank, for the receipt of all moneys due to the corporate person.

j. The liquidator shall distribute the proceeds from realization within six months from the receipt of the amount to the stakeholders.

Step – 6 Completion of liquidator:

The liquidator shall endeavour to wind up the affairs of the corporate person within one year from the voluntary LCD. In the event of the voluntary liquidation continuing for more than one year, the liquidator shall.

Step – 7 preparation of final report:

Final Report: On completion of the liquidation process, the liquidator shall prepare the Final Report consisting of:

a. An audited account of the voluntary liquidation, showing the receipts and payments pertaining to liquidation since the LCD; and

b. A statement demonstrating the asset and debts.

c. Sale statement in respect of all assets.

Step – 8 Submission of final Report/Application with NCLT:

The liquidator shall send the Final Report by registered post at their registered address and by electronic. Where the affairs of the Company have been completely wound up, and its assets completely liquidated, the liquidator shall make an application to the NCLT in form NCLT-1 for the dissolution of such Company.

The order of the Tribunal shall be filed with the ROC within a period of 14 days of the receipt of the copy of order, or such other time as may be fixed by the Tribunal.

As now Registered Insolvency Professional will be required to act as a Liquidator in case of winding up proceedings. It is a great opportunity for the Company Secretaries. It will help to boost the profession to scale a new height.

Legal Term

Subpoena Duces Tecum

A legal paper requiring someone to produce documents or records for a trial.

MCA Updates

• No important updates.

SEBI Updates

• SEBI IFSC Guidelines 2015 has been modified.
• Disclosure Requirement for Issuance and Listing of Green Debt Securities.

RBI Updates

• Master Direction – Information Technology Framework for the NBFC Sector .
• Introduction of Legal Entity Identifier for OTC derivatives markets

Income Tax Updates

• Amendment of Income tax Rules to operationalise section 194-IB and introduction of single challan cum statement