Voluntary Liquidation In Vogue Among Promoters Seeking Exit From Unviable Business

A total of 1,559 corporate persons initiated voluntary liquidation in the last nine years

Updated on:

19 May 2023, 7:14 am

2 min read

Voluntary liquidation is increasingly becoming the preferred choice for promoters to close the companies rather than dragging the unviable businesses and incur losses as well as paying compliance costs in order to keep the business running as a going concern.

In the last nine years, a total of 1,559 corporate persons initiated voluntary liquidation until the end of 31 March 2023, according to the Insolvency & Bankruptcy Board of India’s (IBBI) latest quarterly report. It noted that 15 processes were withdrawn by the end of March 2023.

Source: IBBI

The IBBI said that a corporate person may initiate voluntary liquidation proceeding if majority of the directors or designated partners of the corporate person make a declaration to effect that:

The corporate person has no debt or it will be able to pay its debts in full, from the proceeds of the assets to be sold under the proposed liquidation, and

The corporate person is not being liquidated to defraud any person.

Primary reasons for taking such drastic steps to file for voluntary liquidation include commercial unviability, not carrying out business operations and promoters' inability to manage the company’s affairs.

Also, in certain cases, promoters are choosing to approach the National Company Law Tribunal (NCLT) to liquidate the company when the very purposes for which the entity was formed are either accomplished, or the contracts are terminated in the cases of the company being a special purpose vehicle.

The insolvency regulator said the aggregate paid-up capital of 1,544 corporates, which opted for voluntary liquidations, was 10,448 crore rupees ($1.26 billion), while their assets amount totaled 9,349 crore rupees. Most of these corporate persons are small entities, it noted.