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

The board of Kaveri Textiles Pvt Ltd, which has never defaulted on any debt, plans to start voluntary liquidation under the IBC. Which of the following correctly describes the declaration the directors must make?

The declaration must come from a majority of the directors and be verified by an affidavit. It must state that they inquired fully into the company's affairs, that the company has no debt or can pay all debts in full from asset sale proceeds, and that liquidation is not to defraud anyone.

  1. AA declaration by majority of the directors, verified by an affidavit, that they have inquired into the company's affairs and that it has no debt or can pay its debts in full from asset sale proceeds, and is not being liquidated to defraud anyoneCorrect
  2. BA declaration by all the directors, without any affidavit, that the company has stopped business and will repay creditors within five years
  3. CA declaration by the managing director alone, verified by an affidavit, that the company is solvent on the basis of the last year's balance sheet
  4. DA declaration by majority of the directors that the company can pay at least half of its debts from the proceeds of asset sales

Explanation

Section 59(3)(a) requires a declaration from a majority of directors, verified by an affidavit. It must state that a full inquiry was made, that the company has no debt or can pay its debts in full from asset proceeds, and that it is not being liquidated to defraud any person. Payment of only half the debts, or a single director's declaration, does not meet this.

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