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Safeguards to Stakeholders’ Interest under Voluntary Liquidation Process

Voluntary liquidation is a process by which a company, which is otherwise financially viable, chooses to wind up its operations and dissolve its legal existence. Under the Insolvency and Bankruptcy Code (IBC), there are several safeguards in place to protect the rights of stakeholders during the voluntary liquidation process. A fair understanding on safeguards will give confidence to the management or promoters before initiating voluntary liquidation and thereby entrusting all assets including bank balance, cash and other important and valuable assets to a Liquidator so appointed for voluntary liquidation.

These safeguards include provisions for the appointment of a liquidator, the protection of the rights of creditors and shareholders, and the orderly distribution of assets among stakeholders. In this article, we will discuss these safeguards in greater detail and examine how they work to protect the interests of shareholders during voluntary liquidation.

Stakeholders in a company that is being liquidated, may naturally have a number of concerns and worries. These may include:

Loss of investment. They may be concerned about losing the money which is currently invested in business of the company. They may also be worried about not receiving any payment for their shares.

Lack of information. They may not have access to all the information they need to make informed decisions. They may also be concerned about not being kept informed about the bank and asset sale transactions done in the company during liquidation process.

Delayed payment. They may be concerned that they will not receive payment for their shares in a timely manner. This can be particularly worrying if the liquidation process is taking a long time.

Loss of control. They may be concerned about losing control over the company and its assets. They may also be worried about the liquidator making decisions that are not in the best interests of the stakeholders. They may feel that they have no control over the outcome and that their interests are not being taken into account.

Creditor’s priority. Stakeholders may be concerned that the creditors will be paid as per the priority decided by the Liquidator, leaving them with no room to monitor the process.