When does a company go into liquidation under the IBC and how does the process work?

Question

The committee of creditors has rejected every resolution plan for a company. What happens next and how does liquidation proceed? I would like to understand which provision governs this, what it entitles me to, and how long I have before the remedy lapses. I also want to know whether I need a lawyer for this or can do it myself.

MyVakeel Legal Desk · Accepted Answer

In India, the answer to "When does a company go into liquidation under the IBC and how does the process work?" turns on Insolvency and Bankruptcy Code 2016, Section 33, Insolvency and Bankruptcy Code 2016, Section 52 and Insolvency and Bankruptcy Code 2016, Section 53. The points below set out the position and then what to do about it, in the order it should be done.

Section 33 requires the NCLT to order liquidation of the corporate debtor where no resolution plan is received or approved within the specified period, where the committee of creditors decides to liquidate with the requisite majority, or where the approved plan is contravened.

On a liquidation order, a liquidator is appointed who takes custody of the corporate debtor's assets, and a fresh moratorium applies restraining suits against the corporate debtor except those brought by the liquidator.

Section 52 allows a secured creditor to either relinquish security interest to the liquidation estate or realise it outside the liquidation process, subject to reporting the outcome to the liquidator.

Section 53 lays down the strict waterfall mechanism for distribution of liquidation proceeds, prioritising insolvency resolution and liquidation costs, followed by workmen's dues and secured creditors ranking equally, then unsecured financial creditors, government dues, and finally equity shareholders.

Liquidation is treated as a measure of last resort under the IBC's scheme, and the Code's stated objective favours resolution and going-concern rescue over asset sale wherever feasible.

What to do next: 1) Verify whether the liquidation order arose from failure to find a plan or from committee decision; 2) Submit claims to the liquidator within the timeline set out in the public announcement of liquidation; 3) Track the waterfall distribution under Section 53 to assess likely recovery; 4) Consult insolvency counsel on options to challenge the liquidation order if procedural lapses occurred.

If you are unsure whether your facts fall inside Insolvency and Bankruptcy Code 2016, Section 33, that is worth checking with an advocate before you commit to a route, because switching later costs time. You can post the details on the MyVakeel forum for a practising advocate to review, or book a paid consultation with a Bar Council verified lawyer in corporate law.