Voluntary liquidation rises under Insolvency and Bankruptcy Code

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Voluntary liquidation rises under Insolvency and Bankruptcy Code

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CHENNAI: Voluntary liquidation of Indian companies under Insolvency and Bankruptcy Code (IBC) has gone up 14x with final reports submitted stood at 30 cases in the June-September quarter, compared to just two cases in the same quarter last year. Among various reasons for voluntary liquidation not carrying business operations stands the highest at 259 cases (of 426 total cases) since January, 2019.

In the quarterly newsletter, insolvency regulator Insolvency and Bankruptcy Board of India (IBBI), has recorded a total of 498 cases of voluntary liquidation admitted till September 30, 2019.

With the IBC Amendment in 2018, Section 59 of the Code gives provisions for companies to voluntarily initiate a liquidation process. “Only companies who have no further debt to clear choose this route. Earlier in order to initiate used external help to file a case against themselves with the IBC when they want to liquidate their business, however, with the new law in place they volunteer,” a Chennai-based NCLT advocate, said.

According to Section 59 (1) of the IBC Act, volunteer liquidation can be initiated by a corporate person who has not committed any default.

A corporate person may initiate voluntary liquidation proceeding if majority of the directors or designated partners of the corporate person make a declaration to the effect that (i) the corporate person has no debt or it will be able to pay its debts in full from the proceeds of the assets to be sold under the proposed liquidation, (ii) the corporate person is not being liquidated to defraud any person.

Most of these corporate persons are small entities, where 289 of them have paid up equity capital of less than Rs 1 crore. The report said only 45 of them have paid-up capital exceeding Rs 5 crore. The corporate persons, for which details are available, have an aggregate paid up capital of Rs 2,711 crore with an outstanding debt of Rs 861 crore.

Other reasons companies submitted for initiating voluntary liquidation includes 59 companies turning commercially unviable, 19 reported no revenue, for companies, 10 companies reported running into losses, while eight others reported promoters unable to manage affairs. Meanwhile, eight companies wanted to be liquidated on account of accomplishing the very purpose for they were formed.

Source- Times of India.