Insolvency 2025

INDIA Law and Practice Contributed by: Shardul Shroff, Misha, Kritika Poddar and Aishwarya Satija, Shardul Amarchand Mangaldas & Co

Voluntary liquidation A corporate person who has not committed any default in payment obligations and has no debts or can pay all its debts in full can initiate a voluntary liqui - dation process under the Code pursuant to obtaining: • a declaration of solvency by the majority of the directors of the company; and • a declaration that the company is not being liqui - dated to defraud any person. Such a declaration has to be accompanied by: • audited financial statements of the company along with a record of its operations for the last two years; and • a report of the valuation assets of the company prepared by a registered valuer. Within four weeks of such a declaration: • a resolution must be passed by a special majority (75% or more, present and voting) of members of the company requiring the company to be liqui - dated; and • a resolution must be passed by the members of the company in a general meeting requiring the company to be liquidated as a result of expiry of the period of its duration, if any, fixed by its consti - tutional documents or the occurrence of any other event that requires the dissolution of the company according to its constitutional documents. In both cases, the resolution passed must also appoint an insolvency professional to act as the liquidator of the company. Moreover, if the company owes debts to creditors, then approval of the resolution by credi - tors representing two thirds of the value of the debt is required. The company is required to notify the Registrar of Companies and the IBBI of the resolution passed and liquidate the company within seven days from the date of the resolution of approval of the resolution by the creditors of the company as the case may be. A liquidator will attempt to complete the liquidation process within one year and, after the liquidation of the assets of the company and winding up of all of

• selling the assets of the CD by way of a public auc - tion or private sale. The liquidator can sell the assets of the CD in various manners such as: • on a standalone basis; • in a slump sale; • in parcels; • as a set of assets collectively; or • by schemes of arrangements under the CA 2013. The CD or the business of the CD may also be sold as a going concern during liquidation proceedings. The liquidator is permitted to carry on the business of the CD only to the extent they consider necessary for its beneficial liquidation. The creditors may require the liquidator to provide them with any financial informa - tion relating to the CD. The liquidation process must be completed within a period of one year of its commencement. Priority of creditors The statutory waterfall for distribution of liquidation proceeds under the Code is as follows: • the insolvency resolution process costs (costs incurred during the CIRP, such as interim finance; fees of the RP; expenses incurred by the RP to keep the CD as a going concern; and liquidation costs (including the PPIRP costs)) in full; • debts owed to a secured creditor in case of relin - quishment of security interest and workmen’s dues (restricted to a period of 24 months prior to liquida - tion) rank equally; • wages and any unpaid dues owed to employees other than workmen (restricted to a period of 12 months prior to liquidation); • financial debts owed to unsecured creditors; • amounts owed to the government and debts owed to secured creditors for unpaid amounts following the enforcement of security interest outside liqui - dation (which rank equally); • any remaining debts; • preference shareholders (if any); and • equity shareholders or partners (as the case may be).

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