Laws & Legal Procedure for Voluntary Liquidation of One Person Companies (OPC): Lawyers Advice
The Insolvency and Bankruptcy Code, 2016 not only enables the insolvency proceedings of the insolvents but also contains provisions for solvent entities that want to themselves surrender their and refrain from carrying on their business. This article deals with the legal procedure for such voluntary winding up/liquidation of One Person Companies under the IBC.
Governing Laws & Statutes –
- The Companies Act, 2013 – As per Section 2(62) of the Act, a one-person company is defined as a company which has only one person as member.
- The Insolvency and Bankruptcy Code, 2016 –
• Section 59 of the Code contains provisions for voluntary liquidation of corporate persons.
• As per Section 59 of the Code, along with Sections 431(1)(C) and 465 of the Companies Act 2013 along with Rule 4, all fresh proceedings for voluntary liquidation that come up on or after 1st April 2017, shall be instituted before NCLT and be governed by the provisions of the Code and its Regulations only.
- IBBI (Voluntary Liquidation Process) Regulations, 2017
Pre-Requisites for Voluntary Liquidation –
There are certain conditions a corporate entity has to fulfil in order to liquidate under the voluntary liquidation process. They are as follows –
- Solvency of the Entity – The corporate entity which proposes to be liquidating under voluntarily liquidation process should possess no debts or be able to pay off its debts from the proceeds of the assets sold during voluntary liquidation process.
- The company should not be liquidated with the intention of defrauding any person.
Pre-Liquidation Compliances –
- Declaration of Solvency – In the case of One Person Companies, the member who acts a shareholder as well as a director, shall submit a declaration of solvency supported by an affidavit quoting that he has made detailed inquiry into the affairs of the company and has arrived at the opinion that the company has no debts or that the company will be able to pay off its debts from the liquidation estate in full, along with a declaration that the company is not being liquidated with the intention of defrauding any person.
This declaration should also contain –
• Audited financial statements along with records of business operations for the for the previous two years or for the period sine incorporation, whichever is later.
• A valuation report of the assets prepared by the registered valuer, of the company, if any.
- The member shall also appoint an insolvency professional to act as the official liquidator for the process.
- Creditors Approval – If the company owes any debt to any person, then approval of the creditors representing 2/3rd value of such debt needs to be obtained as well.
- Communication to ROC and IBBI – Upon approval of the creditors and members (Not applicable for OPCs), the company needs to communicate the same to the ROC and IBBI.
Upon such approval by the members (not applicable for OPCs) and creditors, the voluntary liquidation process is said to commence. The entire legal procedure of the same as per the IBC is as follows –
- Appointment of Liquidator – An insolvency professional is appointed as a liquidator to undertake the voluntary liquidation process.
- Public Announcement – The liquidator then makes a public announcement of his appointment, both in one English and in the regional language newspaper which is in wide circulation at the place of registered office, including the corporate person’s website as well. The liquidator also invites all stakeholders to submit their claims within a period of 30 days from the liquidation commencement date.
- Submission of Proof of Claims by Creditors – Any person claiming to be a stakeholder or creditor of the corporate entity are to submit and prove their claims in the prescribed form as mentioned in the Code along with their respective annexures as well.
- Verification of Claims – The liquidator then verifies these claims, either accepting or rejecting them, within a period of 30 days.
- Preparation of a List of Stakeholders – The liquidator then prepares a list of stakeholders, as per the claims accepted and rejected by him.
- Realisation of Assets –
• Once the list of stakeholders is finalized, the liquidator is to commence with realizing the assets of the corporate person.
• The liquidator is to himself or with the assistance of a registered valuer ascertain the value of the assets of the corporate debtor and thereafter initiate the sale of the assets in the prescribed mode and manner as approved by the corporate person.
• The liquidator is also to initiate a recovery process to realize all the assets and the dues of the corporate person within due time.
- Opening of a Separate Bank Account –
• The liquidator shall also open a separate bank account for the corporate person, in a scheduled bank, for the purpose of receiving all the money due to corporate person during this process.
• Such bank account needs to contain “In voluntary liquidation” as part of its name.
- Distribution of the Realised Proceeds –
• Once the assets of the corporate person are realized and the bank account is opened, the liquidator is to then distribute the proceeds obtained by realizing the assets of the corporate person within a time frame of six months to be counted from the date of receipt of the amount among the stakeholders.
• Prior to distributing the proceeds, the liquidator is also to deduct the liquidation cost incurred by him.
- Preparation of the Final Report –
• The liquidator shall then draft a final report of the liquidation process incorporating the audited accounts of the liquidation along with the report.
• Such report is then to be sent to the ROC, NCLT and the Insolvency and Bankruptcy Board as well.
- Application for Dissolution –
• Once the corporate person has been wound by, assets have been realised etc. the liquidator shall then file an application to the relevant adjudicating body for dissolution of the corporate person.
The duration of this entire process is for 12 months from the commencement of the liquidation process date.
To conclude, the voluntary liquidation process is a blessing for all companies. While the Fast Track Exit scheme was provided only to inoperative companies, who had nil assets and liabilities under the Companies Act, the Insolvency and Bankruptcy Code provides an easy for solvent companies as well, provided they have the capacity to clear all their debts.
Authored By: Adv. Anant Sharma & Madhulika Iyer