A company has failed to pay a loan instalment to its bank on the due date. Its members now wish to liquidate it voluntarily. Can it initiate voluntary liquidation under section 59 of the Insolvency…
Question and options
A company has failed to pay a loan instalment to its bank on the due date. Its members now wish to liquidate it voluntarily. Can it initiate voluntary liquidation under section 59 of the Insolvency and Bankruptcy Code, 2016?
No; after a default only the Registrar may petition to wind it up
Yes, if creditors holding two-thirds in value of its debt approve the resolution
Yes, if its members pass a special resolution and its creditors approve
No; the procedure is open only to a corporate person that has not defaulted
Answer and explanation
Section 59(1) of the Insolvency and Bankruptcy Code, 2016 makes voluntary liquidation available to a corporate person that intends to liquidate itself and has not committed any default. The directors' solvency declaration and the approval of creditors holding two-thirds in value of the debt under section 59(3) are further conditions for an eligible company; they cannot cure a default. A default is pursued by creditors through the insolvency resolution process, not by a Registrar petition.
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