Company liquidation is the process through which a legal entity that finds itself in financial difficulty sells its assets to satisfy its creditors’ claims.
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.
| Quick Facts | |
|---|---|
| Types of company liquidation in India |
– voluntary liquidation, – compulsory liquidation |
|
Voluntary liquidation – characteristics |
Started by the company itself, not by creditors or courts; Requires majority approval from the board of directors; Company must have no debts or declare it can pay its debts from selling its assets. |
|
Documents needed for voluntary liquidation |
– directors’ declaration, – audited financial statements, – asset valuation report, – shareholders or creditors’ approval, – resolution plan |
| Initiating voluntary liquidation |
Once all approvals are obtained, the company must inform the Registrar of Companies within seven days. Our lawyers can help you initiate voluntary liquidation. |
| Role of liquidator |
– manage company debts, – verify creditor claims, – sell company assets, – distribute sale proceeds to creditors/shareholders, – apply for official dissolution with the National Company Law Tribunal (NCLT). |
| Compulsory liquidation – characteristics |
Initiated by creditors to the NCLT if the company has at least an INR 100,000 debt; Supervised by the local courts and NCLT. |
| Documents for creditors proving their claims |
– official communication with debtor, – unpaid invoices, – financial statements stating the debt, – bank statements, etc. |
| Appointing the liquidator |
– by shareholders (voluntary liquidation), – by NCLT (compulsory liquidation) |
| Removal of liquidator |
If he/she fails to fulfill his/her duties. |
| Distributing the proceeds from the liquidated assets |
Any costs related to insolvency proceedings; Employee due wages; Creditor debts; Government debts; Remaining funds are distributed to company shareholders. |
| Liquidation of shelf company company |
Possible, by submitting an application to the Registrar of Companies. Our lawyers can assist. |
| Appeals |
Creditors or company members can appeal the liquidator’s decision regarding their claims. |
| Regulatory framework for company liquidation |
– Companies Act, 2013; – Insolvency and Bankruptcy Code, 2016 |
| Alternative to company liquidation |
Through rehabilitation, companies can implement certain strategies to stabilize their business operations. |
| Assistance | Our law firm in India can assist with company liquidation by providing legal advice, handling documentation, and representing clients before relevant authorities. |
Table of Contents
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, which is also referred to as winding up a company in India, can be determined by several factors, among which 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 the 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 your situation, our team of specialist lawyers can provide legal representation and guidance as the case is taken to court.
When a qualified liquidator or administrator is appointed during the proceedings to close a company in India, 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 to your case.
The liquidation of small and medium companies in India
A pre-packaged insolvency process can be used in the case of some legal entities. This may be preferred, as it commences with an informal insolvency plan agreed by the creditor and the debtor, with the purpose of settling the debt.
For micro, small, or medium companies in India, an application for a pre-packaged insolvency resolution can be submitted. Business owners can opt to close a company in India in this manner in the following cases:
- the company has not undergone this same process three years prior to the initiation date of the pre-packaged insolvency resolution;
- the company is not undergoing a corporate insolvency resolution process when it commences the pre-packaged insolvency resolution;
- there is no order issued for the liquidation of the company;
- the company is eligible to submit such an insolvency plan; our lawyers in India can give you more details;
- the financial creditors have designated the insolvency professional who will conduct the pre-packaged insolvency resolution process.
In addition to observing the eligibility criteria above, the company will also need to provide attached evidence to its application that it is a micro, small, or medium enterprise according to law. For this purpose, it will provide a certificate of registration, along with information that indicates its financial status.
According to law, a pre-packaged insolvency process should be completed within no more than 4 months.
During this time, the management of the corporate debtor continues, and the directors make diligent efforts to present the value of the company’s property.
A key feature of the pre-packaged insolvency process in India is that it involves both an informal phase and a formal one. During the informal phase, the creditor and the debtor have the flexibility to negotiate certain terms, so that they can resolve the debt.
If pre-packaged insolvency is a favorable option for winding up a company in India, the experts at our law firm in India can give you more details about the typical stages of this type of insolvency, the role of the involved parties, and what you can expect.
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 assessed 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
The Indian Insolvency and Bankruptcy Board issues quarterly reports on the number of bankruptcies and insolvencies in India. Our lawyers in India present a set of such data on the number of voluntary submissions for company liquidation in India:
- at the end of March 2024, there were 1.895 commenced voluntary liquidations;
- out of this total, 34 applications were withdrawn;
- final reports were submitted for 1,393 cases;
- for 1,782 cases the authorities also issued the reason for the voluntary liquidation: in 69% of the cases, the reason was that the company was not carrying out business operations; in 2% of the cases, the voluntary liquidation was initiated because the promoters were unable to manage the affairs of the business.
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 a company in India, 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.
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.