Introduction
The Insolvency and Bankruptcy Board of India (‘IBBI’) has introduced amendments to the 2017 regulations governing voluntary liquidation, aiming to streamline and enhance the efficiency of the process. These changes are part of the IBBI (Voluntary Liquidation Process) (Amendment) Regulations, 2024[i] (‘2024 Regulations’).
Key Amendments:
Affidavit Verification[ii]:
The requirements for affidavit verification in the context of voluntary liquidation have been revised. It is now incumbent upon companies to ensure the availability of sufficient funds to meet all outstanding obligations prior to initiating the liquidation process. This precautionary measure aims to ensure a seamless transition through the liquidation phase, safeguarding creditors’ interests.
Disclosure Requirements[iii]:
The 2024 Regulations require companies to enhance disclosure obligations, necessitating the disclosure of any ongoing legal proceedings, investigations by government agencies, or lawsuits in which they are involved. This aims to provide all stakeholders, including creditors and investors, with a clear understanding of the company’s legal situation that could impact the liquidation process.
Meeting of Contributories[iv]:
The 2024 Regulations require the convening of more frequent meetings with contributories until dissolution application submission, along with the provision of detailed explanations regarding any delays or additional time required. The frequency of these meetings is set at intervals of either 90 or 270 days, depending on the specific situations. This aims to ensure regular updates and transparency throughout the process.
Status Report Filing[v]:
Companies undergoing voluntary liquidation now need to provide regular progress reports. A new rule requires the liquidator to file a ‘Status Report’ with the IBBI within seven days of holding a meeting with the contributories. This provision ensures the active participation of all company members and the timely dissemination of updates concerning the liquidation procedure and its advancement.
Withdrawal from Corporate Voluntary Liquidation Account[vi]:
The 2024 Regulations simplify the process for individuals to claim money from companies undergoing voluntary liquidation. Companies that are closing now have a defined process for individuals to claim any remaining funds. Claimants can submit their proof, and the company overseeing the liquidation will verify it and request the release of funds. Even after the company officially closes, there are still ways for individuals to claim their money.
Analysis
India has streamlined the voluntary company closure process with these newly amended rules. The IBBI has made these amendments to make the process of shutting down a company and winding down a business smoother and more transparent. These revisions comprehensively address procedural aspects such as document verification, legal disclosures, stakeholder meetings, progress reporting, and the distribution of remaining funds. Stakeholders involved in the voluntary liquidation process, including creditors and legal practitioners, must acquaint themselves with these regulatory updates to ensure compliance and facilitate a smooth liquidation process.
End Notes:
[i] Notification No. IBBI/2023-24/GN/REG109 dated 31.01.2024.
[ii] Regulation 3(1)(a), sub-regulation (i) and Regulation 3(1)(b), sub-regulation (iii)
[iii] Regulation 3(1)(b), sub-regulation (iii)
[iv] Regulation 37(2)(a)
[v] Regulation 37(4)
[vi] Regulation 39(7) to (7E)
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Authored by Aishwarya Pawar, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.