GAUTAM BUDDHA UNIVERSITY

SCHOOL OF LAW JUSTICE AND GOVERNANCE

INSOLVENCY AND BANKRUPTCY CODE

Regime of Voluntary Liquidation under IBC

SUBMITTED BY: SUBMITTED TO:

SHWETA SINGH MS. HABIBA SHEIKH

217/ILB/030
 ACKNOWLEDGMENT

I would like to express my profound gratitude to Mrs. Rama and Mr. K.K. Diwedi of Gautam
Buddha University for their contributions to the completion of my project titled Regime of
Voluntary Liquidation under IBC.

I would like to express my special thanks to our mentor Ms. Habiba Sheikh for his time and
efforts he provided throughout the year. Your useful advice and suggestions were really helpful
to me during the project’s completion. In this aspect, I am eternally grateful to you.

I would like to acknowledge that this project was completed entirely by me and not by someone
else.

Signature
Introduction

Under the Insolvency and Bankruptcy Code (IBC), voluntary liquidation is a process that
allows a company to initiate the winding up of its operations and distribution of assets in a
structured and orderly manner. This process offers a way for financially distressed companies
to bring their affairs to an end, liquidate their assets, and distribute the proceeds to their
creditors and shareholders. Voluntary liquidation is a significant part of the insolvency
framework, providing a legal mechanism for companies to wind up their affairs under the
oversight and administration of a liquidator.
Voluntary liquidation can be initiated by the company itself, its creditors, or its shareholders.
When the decision for voluntary liquidation is taken by the company, it is required to convene
a meeting of its shareholders or an extraordinary resolution is passed declaring that the
company should be wound up through voluntary liquidation. The process is then overseen by
a liquidator appointed by the company, who takes charge of the company's assets, operations,
and financial affairs. The liquidator is responsible for managing the company's affairs during
the liquidation process, realizing its assets, paying off its debts, and distributing any
remaining funds to the creditors, employees, and shareholders in accordance with the priority
established under the IBC.
The voluntary liquidation process under the IBC provides a clear and transparent mechanism
for companies to wind up their affairs and address their financial obligations in a fair and
equitable manner. It ensures that the interests of all stakeholders are taken into account and
that the process is conducted with transparency and integrity. By providing a structured
framework for voluntary liquidation, the IBC aims to minimize the potential for disputes and
litigation, promoting a more efficient resolution of the company's financial troubles.
One of the key features of the voluntary liquidation process under the IBC is the involvement
of a registered insolvency professional, who acts as the liquidator. The insolvency
professional is appointed to oversee the entire liquidation process, ensuring that it is
conducted in accordance with the provisions of the IBC and in the best interests of all
stakeholders. The liquidator plays a crucial role in managing the company's affairs, realizing
its assets, determining the claims of creditors, and distributing the proceeds of the liquidation
in a fair and timely manner.
The voluntary liquidation process under the IBC also includes provisions for the dissolution
of the company following the completion of the liquidation process. Once all the company's
assets have been realized, its debts paid off, and the remaining funds distributed, the company
is dissolved, and its legal existence comes to an end. This provides a definitive and
conclusive end to the company's operations, allowing it to be removed from the register of
companies and bringing finality to the liquidation process.1

1
https://www.indiacode.nic.in/handle/123456789/2154?sam_handle=123456789/1362
Background

Voluntary liquidation, also known as voluntary winding up, is a process initiated by a

company to bring its operations to an end in an orderly and supervised manner. It can be
triggered by various reasons, such as financial distress, insolvency, or when the business is no
longer viable.
The concept of voluntary liquidation is rooted in company law and has developed over time
through legislative and judicial actions. In many jurisdictions, including India, the process of
voluntary liquidation is governed by specific legislation, such as the Insolvency and
Bankruptcy Code (IBC) and the Companies Act.
Under the Companies Act, voluntary liquidation can be carried out either as a members’
voluntary liquidation (MVL) or a creditors’ voluntary liquidation (CVL), each with its own
set of rules and procedures. In the case of MVL, the company is solvent, and the shareholders
decide to wind up the business, while in CVL, the company is insolvent, and the decision to
liquidate is made by the creditors.
In the context of the Insolvency and Bankruptcy Code in India, voluntary liquidation is a
crucial component of the insolvency framework. The IBC provides a comprehensive
mechanism for the voluntary liquidation of companies facing financial distress, offering a
structured and transparent process for the realization of assets and settlement of liabilities.
The key features of voluntary liquidation under the IBC include the appointment of a
resolution professional as the liquidator, the realization and distribution of the company’s
assets, and the settlement of its debts. The involvement of the resolution professional ensures
that the process is conducted in accordance with the provisions of the IBC, with a focus on
fairness and accountability to all stakeholders.
An important aspect of the voluntary liquidation process is the protection of the rights of
creditors, shareholders, and other stakeholders. The IBC aims to safeguard the interests of all
parties involved by providing a clear framework for the orderly winding up of the company’s
affairs, minimizing disputes, and ensuring a fair and equitable distribution of assets.
In the global context, voluntary liquidation is a common practice in many jurisdictions, each
with its own legal framework and requirements. The process is often seen as a way for
companies to manage their financial troubles and bring finality to their operations in a
controlled manner.
Voluntary liquidation is also important from an economic perspective, as it allows for the
efficient allocation of resources and the resolution of financial distress. By providing a legal
mechanism for companies to wind up their affairs, voluntary liquidation promotes the orderly
exit of businesses, allowing for the reallocation of assets and the release of resources to more
productive uses.2

2
https://www.indiacode.nic.in/handle/123456789/2154?sam_handle=123456789/1362
Importance

Voluntary liquidation under the Insolvency and Bankruptcy Code (IBC) is an important
mechanism for the systematic and organized winding up of companies facing financial
distress. It provides a legal framework for businesses to address insolvency and liquidate their
assets in a fair and transparent manner. The importance of voluntary liquidation under the
IBC can be understood through the following points:
1. Resolution of Insolvency: Voluntary liquidation allows insolvent businesses to initiate a
process that leads to the settlement of their debts and the realization of their assets in a
structured manner. This resolution mechanism is essential for companies that are unable to
meet their financial obligations. By voluntarily initiating the liquidation process, the company
can address its financial distress and work towards a resolution that is fair to all stakeholders
involved, including creditors, shareholders, and employees.
2. Protection of Stakeholder Interests: The IBC ensures that the rights of various
stakeholders are protected during the voluntary liquidation process. Creditors, shareholders,
and employees all have a stake in the outcome of the liquidation, and the IBC aims to provide
a fair and equitable distribution of assets and settlement of debts. This helps to minimize
disputes and ensures accountability in the proceedings, ultimately fostering trust and
confidence in the resolution process.
3. Efficient Asset Realization: Voluntary liquidation provides a mechanism for the efficient
realization of a company's assets. This involves converting the company's assets into cash to
settle its outstanding liabilities. The IBC's framework for voluntary liquidation aims to
maximize the value of the company's assets and optimize their use, ultimately enabling an
orderly winding up of the company's affairs.
4. Transparent and Supervised Process: Under the IBC, voluntary liquidation is conducted
under the supervision of a resolution professional who acts as the liquidator. This ensures that
the process is transparent, accountable, and compliant with the provisions of the law. The
resolution professional plays a crucial role in overseeing the liquidation process, managing
the company's assets, and ensuring that the interests of all stakeholders are taken into
consideration.
5. Orderly Exit of Businesses: Voluntary liquidation facilitates the orderly exit of businesses
that are no longer viable. It allows for the release of resources and the reallocation of assets to
more productive uses. By providing a structured process for the winding up of the company's
operations, voluntary liquidation promotes economic efficiency and the allocation of
resources to viable enterprises.
6. Promotes a Fresh Start: For companies facing financial distress, voluntary liquidation
can provide an opportunity for a fresh start. By initiating the liquidation process, the company
can work towards resolving its financial troubles and then explore new opportunities. This
could involve restructuring the business, pursuing alternative ventures, or addressing
underlying issues that led to insolvency in the first place.

Additionally, the IBC's framework for voluntary liquidation also contributes to the overall
insolvency resolution mechanism in several ways. Firstly, it enables the optimal use of the
company's assets, ensuring that they are efficiently converted into cash to settle the
company's outstanding debts. This efficient realization of assets contributes to the overall
effectiveness of the insolvency resolution process. Secondly, by providing a clear and
regulated process for liquidation, the IBC fosters confidence among stakeholders,
contributing to the stability and transparency of the insolvency resolution framework. This, in
turn, encourages greater participation and cooperation in insolvency proceedings, ultimately
enhancing the effectiveness of the overall resolution mechanism.

In conclusion, voluntary liquidation under the IBC plays a critical role in addressing
insolvency and financial distress, offering a legal framework for companies to wind up their
affairs in a fair, transparent, and orderly manner. It is an important component of the overall
insolvency resolution framework, promoting the resolution of financial troubles and the
efficient allocation of resources. By providing a structured and supervised process for the
orderly exit of businesses, voluntary liquidation contributes to the stability and effectiveness
of the insolvency resolution mechanism. Ultimately, it serves as a vital tool for addressing
financial distress and enabling companies to work towards a fresh start.
3

3
https://www.livelaw.in/amp/columns/insolvency-and-bankruptcy-code-ibc-voluntary-liquidation-section-59-
of-the-ibc-insolvency-and-bankruptcy-board-of-india-ibbi-217775
Under Insolvency and Bankruptcy Code
The Insolvency and Bankruptcy Code (IBC) provides a framework for voluntary liquidation,
allowing a company to initiate the winding up of its operations in an orderly and supervised
manner. Under the IBC, the process of voluntary liquidation involves several key steps and
features, which are aimed at providing a structured and transparent mechanism for companies
to address their financial difficulties and wind up their affairs.
First and foremost, the decision to opt for voluntary liquidation must be approved by the
shareholders of the company through a special resolution. The resolution should be passed
with a significant majority in favor of the decision to wind up the company voluntarily. Once
the decision for voluntary liquidation is made, a resolution professional is appointed as the
liquidator to oversee the entire liquidation process. The liquidator takes charge of the
company’s assets, operations, and financial affairs and is responsible for managing the affairs
of the company during the liquidation process.
One of the primary objectives of voluntary liquidation under the IBC is the realization of the
company's assets. The liquidator is tasked with realizing the company’s assets, including its
properties, investments, and other holdings. The proceeds from the sale of these assets are
then used to settle the outstanding liabilities of the company. The entire process is conducted
in a transparent and accountable manner under the supervision of the liquidator.
The settlement of liabilities is another critical aspect of the voluntary liquidation process. The
liquidator determines the claims of creditors and distributes the proceeds of the liquidation in
accordance with the priority established under the IBC. The debts and liabilities of the
company are paid off in a systematic and equitable manner, ensuring that all stakeholders are
treated fairly during the liquidation process.
Following the completion of the liquidation process and the settlement of all debts and
liabilities, the company is dissolved. Its legal existence comes to an end, and it is removed
from the register of companies, bringing finality to the liquidation process. This ensures that
the company’s affairs are wound up in a definitive manner, providing closure to its operations
and obligations.
Throughout the voluntary liquidation process, the role of the insolvency professional (the
liquidator) is pivotal. The insolvency professional ensures that the liquidation process is
conducted in accordance with the provisions of the IBC and in the best interests of all
stakeholders. The professional manages the company’s affairs, handles the realization of
assets, and ensures that the distribution of proceeds is carried out in a fair and transparent
manner.
Voluntary liquidation under the IBC provides several benefits to companies facing financial
distress. It offers a structured mechanism for companies to wind up their affairs in an orderly
manner, minimizing the risk of disputes and providing a transparent process for the
realization of assets and settlement of liabilities. By providing a clear framework for the
voluntary liquidation process, the IBC aims to promote a fair and equitable resolution of the
company’s financial troubles.
Moreover, voluntary liquidation under the IBC allows companies to take control of their
financial situation and initiate the process of winding up their operations on their own terms.
This can be particularly advantageous for companies facing financial difficulties, as it
provides them with an opportunity to proactively address their obligations and work towards
a definitive resolution of their affairs.
Another significant aspect of voluntary liquidation under the IBC is the protection of
stakeholders’ interests. The involvement of the insolvency professional as the liquidator
ensures that the liquidation process is conducted with transparency and accountability,
serving the best interests of all stakeholders involved. By overseeing the realization of assets,
settlement of liabilities, and the dissolution of the company, the insolvency professional plays
a crucial role in safeguarding the rights of creditors, shareholders, and other parties associated
with the company.
Here are some key aspects of the regime of voluntary liquidation under the IBC:
1. Consent of Shareholders: The process of voluntary liquidation can be initiated by the
company itself through a resolution passed by its shareholders. Alternatively, it can also be
initiated by the creditors or contributors associated with the company. The decision to opt for
voluntary liquidation must be approved by the shareholders through a special resolution, with
a significant majority in favor of the decision.
2. Appointment of Liquidator: Once the decision for voluntary liquidation is made, a
resolution professional is appointed as the liquidator to oversee the entire liquidation process.
The liquidator takes charge of the company’s assets, operations, and financial affairs and is
responsible for managing the affairs of the company during the liquidation process.
3. Realization of Assets: The liquidator is tasked with realizing the company’s assets,
including its properties, investments, and other holdings. The proceeds from the sale of these
assets are then used to settle the outstanding liabilities of the company. The entire process is
conducted in a transparent and accountable manner under the supervision of the liquidator.
4. Settlement of Liabilities: The liquidator determines the claims of creditors and distributes
the proceeds of the liquidation in accordance with the priority established under the IBC. The
debts and liabilities of the company are paid off in a systematic and equitable manner,
ensuring that all stakeholders are treated fairly during the liquidation process.
5. Dissolution of the Company: Following the completion of the liquidation process and the
settlement of all debts and liabilities, the company is dissolved, and its legal existence comes
to an end. This provides a definitive conclusion to the company’s operations, allowing it to be
removed from the register of companies and bringing finality to the liquidation process.
6. Oversight by Insolvency Professional: Throughout the voluntary liquidation process, the
role of the insolvency professional (the liquidator) is pivotal. The insolvency professional
ensures that the liquidation process is conducted in accordance with the provisions of the IBC
and in the best interests of all stakeholders. The professional manages the company’s affairs,
handles the realization of assets, and ensures that the distribution of proceeds is carried out in
a fair and transparent manner.4

4
https://incorpadvisory.in/blog/voluntary-liquidation-under-ibc-2016/
Conclusion
In conclusion, the regime of voluntary liquidation under the Insolvency and Bankruptcy Code
(IBC) provides a structured and transparent process for companies to address insolvency and
wind up their affairs in an orderly manner. It serves as an essential mechanism for resolving
financial distress, protecting stakeholder interests, and promoting the efficient realization of a
company's assets.

The voluntary liquidation process under the IBC ensures that insolvent businesses can initiate
a resolution process that is fair to all stakeholders involved, including creditors, shareholders,
and employees. This contributes to the overall stability and transparency of the insolvency
resolution framework, fostering trust and confidence in the proceedings.
Furthermore, the regime of voluntary liquidation promotes the efficient use of a company's
assets and enables the orderly exit of businesses that are no longer viable. It provides an
opportunity for companies facing financial distress to pursue a fresh start and explore new
opportunities.
Overall, voluntary liquidation under the IBC plays a critical role in addressing insolvency and
financial distress, offering a legal framework for businesses to wind up their affairs in a fair,
transparent, and structured manner. It contributes to the effectiveness of the overall
insolvency resolution mechanism and serves as a vital tool for promoting economic
efficiency and the allocation of resources to viable enterprises.