IBBI Introduces Framework For Termination Of Voluntary Liquidation Proceedings

The Insolvency and Bankruptcy Board of India (IBBI) has put in place a formal mechanism for ending voluntary liquidation proceedings before a company is dissolved. The latest changes also tighten the claims process by requiring stakeholders to update claims that have been partly or fully satisfied and by obligating liquidators to explain why any claim has been rejected.

The changes have been introduced through the Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) (Second Amendment) Regulations, 2026, which came into force on June 1.

A significant feature of the amendments is the insertion of Regulation 42, which lays down the procedure for terminating voluntary liquidation proceedings under the recently introduced provisions of Section 59 of the Insolvency and Bankruptcy Code.

Any resolution seeking termination must spell out why the voluntary liquidation process is being brought to an end. It must also address how liquidation costs will be dealt with and contain a declaration that the interests of stakeholders will not be adversely affected by the decision (Regulation 42(1)).

The liquidator is required to place a report before the Adjudicating Authority regarding the proposed termination. The report must be accompanied by a statement confirming that the prescribed process has been followed, that the move is not intended to defraud any person, and that the corporate person remains solvent (Regulation 42(2)).

Once the conditions under Section 59(5A) are met, the liquidator must notify both the IBBI and the Registrar of Companies within seven days of the special resolution being passed or creditors granting approval, as applicable (Regulation 42(3)).

Termination of the proceedings brings the liquidator's appointment to an end. The liquidator can no longer exercise powers or perform functions under the voluntary liquidation regulations, and no further action can be taken under that framework in relation to the proceedings (Regulation 42(4)).

The amendments also introduce Regulation 28A dealing with submission and updation of claims. A person claiming to be a stakeholder must submit its claim by the deadline mentioned in the public announcement. If a claim is partly or fully satisfied from any source after the liquidation commencement date, the stakeholder must promptly update the claim to reflect that position.

Changes have also been made to the claims verification process. Liquidators must now record written reasons whenever a claim is rejected. They are also required to communicate any decision admitting or rejecting a claim to the concerned stakeholder within seven days (Regulation 29).

In addition, the IBBI has replaced several prescribed forms in the regulations with forms that will be notified separately through circulars. Schedule I, which contained those forms, has been omitted, while the existing Schedule II has been redesignated as Schedule I.