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Company Liquidation in India

Company Liquidation in India

Company liquidation is the process through which a legal entity in financial difficulty sales its assets to satisfy the claims of the creditors.

Company liquidation in India usually takes place out of court, through a voluntary liquidation, however, in some cases, this process can be ordered by a court. Regardless of the reasons for which the process is initiated, and the parties that initiate it, our team of Indian lawyers can assist you.

Our immigration lawyers in India can also help you with information about relocating to the country.

Steps for liquidating the assets of an Indian company

The conditions for commending voluntary liquidation in India are the following:

  • the company can pay the debtors: this must be verified by the company directors as the corporate entity must be able to pay its debts in full.
  • present the proper accompanying documents: the declaration of insolvency must be accompanied by the audited financial statements and a valuation report;
  • special resolution: within four weeks of the date on which the decision to liquidate is made, a liquidator must be appointed.
  • creditor approval: the liquidation resolution must be approved by the creditors who are owed two-thirds of the total debt and this must take place within seven days after the resolution has passed.

Once the company has fully liquidated its assets, it can be subject to a final dissolution, approved by the National Company Law Tribunal. One of our attorneys in India can help you with more information if voluntary liquidation is the manner in which the company directors have agreed to proceed. If you are interested in closing a business in another country, such as Malta, we can put you in touch with our local partners.

The liquidation process, assisted by our lawyers in India

When a company can no longer be rehabilitated, voluntary liquidation is often the first step that is taken into consideration because it is a process that takes place out-of-court. Our team can help you during these proceedings so that the entire process runs as smoothly as possible.

Choosing to end the activity of a company can be determined by several factors, among which some of the common issues can include an improper business plan, lack of business knowledge or failure to adapt to the Indian business market, excessive expenditure, failure to pay the due debts as well as the existing competition.

Company liquidation in India takes place in case of those businesses that have faced one or more of the problems listed above and they are unable to recover from the issue. In this case, the business is not considered salvageable and it will start the voluntary liquidation process. If the company is, however, able to recover, a restructuring process can take place.

The situation can become more complicated, and the assistance of a lawyer becomes even more essential, when the said company has been accused of breaching the commercial business law in India. If this is the case, our team of specialist lawyers can provide legal representation and guidance as in these cases the case is taken to court.

When a qualified liquidator or administrator is appointed during the proceedings, this is performed after consulting with the creditors and the administration of the company’s assets will be performed in the best interest of all stakeholders.

If you are a foreign national interested in the steps required for immigration to India and wish to terminate a previously owned company here (or a jointly-owned business), our team can help you.

We are also able to answer questions for those interested in acquiring Indian citizenship. For investors who have been living in the country for at least twelve years, the application for this status can be made through naturalization. The process is different if the foreign national is married to an Indian citizen. Our team can give you the needed details about the requirements that apply in your case.

Company rehabilitation and liquidation in India

In some cases, liquidating the company is not the first step. Investors may wish to attempt to salvage the company through a rehabilitation process. Although there is no formal legal process in India for this stage, it is advisable for business owners to consider focusing on rehabilitation whenever possible. A two-track approach that combines both rehabilitation and liquidation can be used in some cases and business owners are advised to work with a team of specialists that can help them implement the strategy that suits their business model. In this particular case, liquidation will be required as the aim will continue to be to satisfy the debts of the creditors, whilst attempting to restructure the business in order to salvage it.

Some company rehabilitation strategies can include the sale of assets, cost reductions, the review of the current business strategy, as well as a plan to increase revenue. Some of the actions that may allow the company to reduce its costs will include a reduction of services as well as a reduction of the number of employees. Increased sales efforts as well as the expansion of the consumer base can be taken into consideration.

Some of the recommendations issued by the Ministry of Corporate Affairs related to rehabilitation-focused practices are outlined below by our lawyers in India:

  • Timeframe: the corporation should determine an adequate period for the rehabilitation phase; the goal is to not keep the assets locked in proceedings;
  • Duration: ideally, the rehabilitation process should have an approximate duration of one year; two years should be sufficient for the completion of the liquidation process;
  • Stages: moreover, the parties should be able to indicate a duration for each stage of the rehabilitation and liquidation.

The viability of the business should be carefully assess as early on as possible, and the company in insolvency should show genuine efforts during the rehabilitation process, so that when the liquidation proceedings are converted into rehabilitation ones, the company would have a genuine chance to survive.

The debtor company and the secured creditors can schedule a meeting during which they will discuss the rehabilitation plan.

Our immigration lawyers in India will answer any questions if you wish to move to the country. If you are interested in liquidating a business in another country, such as the Netherlands, we can put you in touch with our local partners.

Company liquidation statistics

According to data cited by Indian news sources on the activity of the National Company Law Tribunal, the time needed to solve these cases has increased in 2021:

  • time needed to solve the cases: the time needed to process insolvency cases (the time to resolution) has slowed by approximately 45%;
  • number of days: approximately 593 days were needed to solve the cases in June, compared to 408 days in March;
  • minimum period: more than 75% of the submitted cases crossed the 270-day period that would have been recommended (ideally, these cases can be solved within 180 days);
  • total cases: since 2016, a number of 4,541 cases were filed with the National Company Law Tribunal and 2,859 of these were closed; 396 of the submitted cases have had their resolution plans approved, meaning that the Tribunal had an approximate success rate of 14%;
  • liquidation: however, approximately 47% of cases resulted in liquidation, as the companies had a large percentage of their assets heavily impaired by the time the insolvency process started; however, corporate debtors did manage to salvage approximately 75% of the distressed assets.

If the company can no longer be salvaged, contact our law firm in India for complete assistance during liquidation and for a swift distribution of company assets, according to the applicable insolvency law in the country.

We also assist investors with other matters, such as obtaining Indian residency. It is not uncommon for foreign nationals who do business in the country to also have questions about their lengthy stay in the country, and how they are expected to comply with the legal requirements for foreigners. If you plan to close an existing business, we can tell you how this affects your residency options.

If you are interested in other types of services, such as moving to India, our team can assist you. We answer questions about immigration to India based on the applicant’s nationality, as well as the type of residence permit one is applying for. Investors interested in knowing more about business visas for the duration of their stay in the country (for company liquidation purposes) can reach out to us.