Introduction

Voluntary liquidation under Section 59 of the Insolvency and Bankruptcy Code, 2016 (IBC) provides a structured and legally compliant exit route for solvent companies and LLPs that wish to discontinue operations. This process ensures that entities can wind up their affairs transparently, protect stakeholder interests, and comply with all statutory obligations before dissolution.

The IBBI (Voluntary Liquidation Process) Regulations, 2017, strengthen the framework for voluntary liquidation by ensuring enhanced compliance, timely reporting, and accountability.

What is Voluntary Liquidation under Section 59 of IBC?

Section 59 of the IBC allows a corporate person who has not committed any default to initiate voluntary liquidation proceedings. This route is typically chosen by companies or LLPs that are financially solvent but no longer wish to continue operations for commercial or strategic reasons.

Key Preconditions under Section 59 of IBC

Before initiating voluntary liquidation, certain conditions must be fulfilled:

1. Declaration of Solvency:
   The directors or designated partners must file an affidavit declaring that the company has made full inquiry into its affairs and is solvent — i.e., it either has no debt or can pay its debts in full from the sale of assets.
2. No Intent to Defraud:
   The declaration must also confirm that the decision to liquidate is not intended to defraud any person.
3. Supporting Documents:
   • Audited financial statements for the last two financial years (or since incorporation, if shorter)
   • Valuation report of assets prepared by a registered valuer
4. Member/Partner Resolution:
   Within four weeks of the declaration, the members or partners must pass a special resolution approving voluntary liquidation and appointing a registered insolvency professional as liquidator.
5. Creditor Approval (if applicable):
   Where the entity owes any debt, creditors representing two-thirds in value of the debt must approve the resolution within seven days.

Regulatory Framework: IBBI (Voluntary Liquidation Process) Regulations, 2017

The IBBI Regulations, 2017, govern the procedural aspects of voluntary liquidation, including:

• Public announcement and claim verification
• Appointment and duties of the liquidator
• Realisation and distribution of assets
• Maintenance of records and reports
• Final dissolution order by the National Company Law Tribunal (NCLT)

Recent IBBI (Voluntary Liquidation Process) (Amendment) Regulations, 2024

The IBBI Amendment Regulations, 2024 (notified on 31 January 2024) introduced key compliance updates to improve transparency and speed of the process.

Major Highlights of the 2024 Amendments:

1. Expanded Declaration Requirements
   The solvency declaration must now include details of:
   • Pending proceedings or statutory assessments
   • Ongoing litigations involving the entity
   • Provision for obligations arising from such pending matters
2. Stricter Reporting Timelines
   • If liquidation extends beyond 270 days (with creditor approval) or 90 days (without creditors), the liquidator must:
     • Call a contributories’ meeting within 15 days of expiry
     • File a status report with IBBI within 7 days of that meeting

Benefits of Voluntary Liquidation under IBC

• Legally compliant and transparent process
• Efficient exit route for solvent companies and LLPs
• Protection of stakeholder and creditor interests
• Clear timelines and regulatory oversight
• Final dissolution order by NCLT ensures closure

Conclusion

The voluntary liquidation process under Section 59 of IBC, strengthened by the IBBI (Voluntary Liquidation Process) (Amendment) Regulations, 2024, offers a robust and transparent mechanism for solvent entities seeking to close their operations.

Entities must ensure accurate declaration of solvency, proper valuation of assets, timely resolutions, and compliance with IBBI reporting obligations. With these measures, companies can achieve a smooth, compliant, and reputation-safe exit.

Need Professional Guidance?

If your company or LLP is considering voluntary liquidation or needs assistance with IBC compliance, solvency declarations, or IBBI filings, reach out to us:

📞 Lal Ghai & Associates | Company Secretaries
📱 +91-94636-40466
✉️ info@lgassociates.org
🌐 www.lgassociates.org