Liquidation of a Company – A Complete Overview
End‑to‑end guide to company liquidation in India under the IBC, covering modes, liquidator roles, procedures, timelines, costs, impacts, and FAQs.
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What is Liquidation of a Company?
Liquidation is the legal process of closing down a company and distributing its assets to clear all liabilities. Triggered by insolvency, continuous losses, or voluntary decision, it marks the formal end of the company’s existence under Indian law, ensuring assets are converted to cash, creditors paid, and any surplus returned to shareholders.
How Company Liquidation Works in India
Governed by the Insolvency and Bankruptcy Code, 2016, liquidation can be voluntary (members’ or creditors’ voluntary liquidation) or compulsory (ordered by NCLT). The process involves asset valuation, sale, claims verification, and distribution in priority order, with oversight by an appointed liquidator.
Modes of Liquidation
● Voluntary Liquidation – Initiated by members or creditors when the business opts to close operations. ● Compulsory Liquidation – Ordered by NCLT due to insolvency or failed resolution plan.
Role of the Liquidator
A liquidator—often the RP—oversees asset realization, settling creditor claims, distributing surplus to shareholders, and reporting to NCLT/IBC authorities.
Procedure for Compulsory Liquidation
1. Application to NCLT by financial/operational creditor for CIRP (default > ₹1 lakh).
2. NCLT appoints Interim Resolution Professional (IRP).
3. Moratorium halts operations and asset transfers.
4. IRP verifies claims and forms CoC within 30 days.
5. CoC appoints or confirms RP and drafts resolution plan (180‑day window).
6. NCLT sanctions plan or, if failed, passes liquidation order.
7. Liquidator takes control, sells assets, pays creditors, and distributes surplus.
Procedure for Voluntary Liquidation
1. Directors declare solvency affidavit (MVL) or insolvency triggers CVL.
2. Board approves liquidation and calls GM.
3. Special resolution in GM to wind up and appoint liquidator.
4. Liquidator advertises in newspapers, invites claims.
5. Assets realized and claims settled within 12 months.
6. Liquidator files final report and applies to NCLT for dissolution.
Liquidation Costs and Fees
IBBI regulations prescribe liquidator remuneration and process fees as a percentage of assets realized, decreasing over the course of liquidation.
Timeframe for Liquidation
Overall duration varies by complexity and mode:
Compulsory Liquidation
Several months to 2 years
Dependent on resolution process, creditor claims, and NCLT orders.
Voluntary Liquidation
Up to 12 months
From declaration of solvency/insolvency to NCLT dissolution order.
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