Voluntary liquidations on rise during Q3

By Ankur Mishra

Voluntary liquidations increased during the December quarter (Q3FY21), as per latest data released by Insolvency and Bankruptcy Board of India (IBBI). As many as 64 voluntary liquidations commenced during Q3FY21, compared to 59 during Q2FY21 and only 10 during Q1FY21. A voluntary liquidation is generally initiated by a company itself, when it wants to pay off its debt through auction of its assets. The only condition is that debt of the company should not be more than its assets. Experts feel that companies may have increasingly gone for voluntary liquidations due to compliance issues.

Ashish Pyasi, associate partner, Dhir and Dhir Associates, said, “In recent times, the Ministry of Corporate Affairs (MCA) have been taking strict measures against the companies failing to meet the compliances resulting into disqualification of the board of members, and company getting struck off from the register.” Therefore, companies are realising that it is better to avoid these issues and close it where there are hardly any operations or business,” he further said.

Experts also feel that a sudden increase in the voluntary liquidations is also due to lockdown restrictions being lifted after June quarter. Misha, partner at Shardul Amarchand Mangaldas & Co, highlighted that subsequent increase is probably due to lifting of lockdown and resumption of normal economic activity as well as expanded functioning of insolvency courts. “Further, since this is ultimately a non-default based mechanism of liquidation, I don’t think we are likely to see large increases in filings, although moderate increases may be possible where companies turn commercially unviable on account of the pandemic or stopped carrying on business for the same reasons,” she added.

Overall, a total 817 corporate persons have initiated voluntary liquidation till December 2020 as per IBBI. The data also showed that final reports in respect of 360 voluntary liquidations have been submitted by December 31, 2020.