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Liquidation

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Liquidation

Liquidation is the process of winding up a company’s affairs and distributing its assets to its creditors and shareholders when the company can no longer continue its business operation. This deliberate decision, often initiated by passing a resolution, involves appointing a liquidator who oversees the systematic procedures for voluntary company liquidation. In India, this liquidation process is regulated by the Companies Act, 2013 and the Insolvency and Bankruptcy Code, 2016. The voluntary liquidation process typically involves several key steps: initiation of the liquidation process, appointment of a liquidator, realization of the company’s assets, payment of debts, and distribution of any remaining assets to shareholders. 

The time taken to complete the liquidation process depends on various factors such as the complexity of the company’s affairs, the extent of its assets and liabilities, and the cooperation of stakeholders.

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Things to Know About Liquidation:

Types of Liquidation

Voluntary Liquidation Services
A company can initiate voluntary liquidation if it has no debts and decides to dissolve due to a reason stated in its bylaws, such as expiration of operating period or occurrence of a dissolution event.

1. Appointment/Replacement of Liquidator

The liquidator is initially appointed by the resolution professional, but can be replaced by the concerned authority if the plan is rejected or if a replacement is recommended. The board then recommends a new liquidator who is approved.

2. Liquidation Estate

The liquidator must list all the debtor's assets to create the liquidation estate. The IBC specifies which assets can be included and excluded from the estate.

3. Consolidation of Claims

The creditors can now make their claims to the liquidation estate. They have a period of 30 days within which they have to make this submission. The creditors can also withdraw their claims within 14 days of submitting them. This is followed by Validation of Claims and Appeal Against the Liquidator.

4. Distribution of Assets on Liquidation

Once the order is finally passed, the estate must be realised with the proceeds going to pay off the creditors. Once this is completed, a stay order must be passed on all the legal suits and proceedings against the debtor. Post this the stage of Dissolution of the Corporate Debtor is carried.

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Fast Track Liquidation

The Indian government had the objective of enhancing the ease of conducting business and enhancing productivity by streamlining the voluntary company liquidation process and startups under the Insolvency and Bankruptcy Code of 2016. The IBC implemented an expedited procedure, reducing the duration for liquidation from 270 days to 90 days, with an extra allowance of 45 days in case of any complexities arising. 

Liquidation of Corporate Debtor
The liquidation process for a corporate debtor starts when the resolution plan is either not submitted or rejected. The resolution professional becomes the liquidator and must make a list of the debtor’s assets to create the liquidation estate.

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