Voluntary Liquidation in India is administered under Insolvency and Bankruptcy Code, 2016. Voluntary Liquidation is the process of liquidating the company with the approval of its members. A company usually goes for a voluntary liquidation when its members decide not to continue its business operations. The main objective is to discontinue the operations and distribute its assets while also paying its debts.

Eligibility: A corporate person will be eligible to opt for voluntary liquidation under IBC provided it fulfils the following two mandatory conditions:

  • Either the company has no debt or that it will be able to pay its debts from the proceeds of assets to be sold in the voluntary liquidation; and
  • the company is not being liquidated to defraud any person.


Steps involved in voluntary Liquidation are summarised below:

  • The Board of Directors of the Corporate Person shall hold a board meeting and the resolution for voluntary liquidation of the corporate person shall be passed and a declaration of the solvency of the corporate person is also to be issued.
  • A meeting of the shareholders shall be convened to approve the voluntary liquidation of the company and appointment of an Insolvency Professional as a liquidator of the company.
  • Any debt owed by the Corporate Person shall be approved by the creditors who represent the 2/3rd of the debt value and the same shall be approved within seven days of passing of such resolution.
  • All the necessary filings will be done with the Registrar of Companies, Insolvency and Bankruptcy Board of India and Income Tax authorities.
  • After appointment of liquidator, he/she will take over the charge of the company and he/she will proceed with further steps including realisation of assets of the company, settlement of outstanding dues and distribution of proceeds to the stakeholders.
  • The liquidator shall give a public notice in the Newspaper and website of the Corporate person for inviting claims from stakeholders.
  • The liquidator shall attempt to complete the liquidation process of the corporate person within twelve months from the liquidation commencement date.
  • Where the affairs of the corporate person have been completely wound up, and its assets completely liquidated, the liquidator shall make an application to the NCLT for the dissolution of such corporate person.
  • After an application filed by the Liquidator, The NCLT shall pass an order, ordering the corporate debtor to be dissolved from the date of the order and the corporate person shall stand dissolved accordingly.
  • A copy of the order shall be forwarded to the authority with which the corporate person is registered.

Maximum time provided in the law to complete

12 months from initiation

Waterfall mechanism for distribution of assets in order of priority

  • The insolvency resolution process costs and the liquidation costs paid in full
  • The following debts which shall rank equally between and among the following:
    • workmen’s dues for the period of twenty-four months preceding the liquidation commencement date; and
    • debts owed to a secured creditor in the event such secured creditor has relinquished security
  • wages and any unpaid dues owed to employees other than workmen for the period of twelve months preceding the liquidation commencement date
  • financial debts owed to unsecured creditors
  • the following dues shall rank equally between and among the following:
    • any amount due to the Central Government and the State Government including the amount to be received on account of the Consolidated Fund of India and the Consolidated Fund of a State, if any, in respect of the whole or any part of the period of two years preceding the liquidation commencement date;
    • debts owed to a secured creditor for any amount unpaid following the enforcement of security interest
  • any remaining debts and dues
  • preference shareholders, if any; and
  • equity shareholders or partners, as the case may be