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CS Professional · Corporate Restructuring, Valuation and Insolvency · Voluntary Liquidation

Arjun Traders Ltd defaulted on a bank instalment last year, which is still unpaid. Its directors now wish to file a declaration of solvency and start voluntary liquidation under the IBC. What is the position?

The company cannot use the voluntary liquidation route. The Code allows a corporate person to start these proceedings only if it has not committed any default, so an unpaid bank instalment bars it, whatever the directors declare or creditors approve.

  1. AIt cannot initiate voluntary liquidation under this Chapter, since only a corporate person that has not committed any default may do soCorrect
  2. BIt can proceed, as the declaration of solvency overrides the default
  3. CIt can proceed if creditors representing one-half in value approve
  4. DIt can proceed if the liquidator is appointed within four weeks

Explanation

Section 59(1) permits voluntary liquidation only for a corporate person that intends to liquidate voluntarily and has not committed any default. The existing default bars the route regardless of the declaration, creditor approval or timing of the liquidator's appointment.

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