Insolvency Process Versus Liquidation


Status as on- 08/12/2022   

Nowadays, various matter has been filed before the Hon’ble National Company Law Tribunal still people are getting confused between the Insolvency Process and Liquidation.   Now we are explaining herein below, the procedure and differences between Insolvency Process and Liquidation;





An insolvency proceeding is a process taken when an organisation or individual are no longer able to meet their financial obligations and pay their creditors when debts are due.


The meaning of liquidation is the act of turning assets into cash. When a business closes and sells all of its merchandise because it is bankrupt, this is an example of liquidation. When you sell your investment to free up the cash, this is an example of liquidation of the investment



By Financial Creditor under Section 7

By Operational Creditor under Sections 8 & 9

By the Corporate Debtor himself under Section 10


Cannot be initiated except voluntary liquidation






·     Application by Financial Creditor or Operational Debtor upon default;


·     AA (Adjudicating Authority) admits or rejects within 14 days



Ø IRP (Interim Resolution Professional) & COC (Committee of Creditors)

·     AA declares moratorium.  Appoints IRP

·     IRP makes a public announcement about CIRP

·     Management of affairs by IRP

·     After receiving claims, IRP constitutes COC and decides voting share

·     COC shall within 7 days shall meet appoint IRP as RP or replace another RP with IRP



·     RP shall conduct all meeting of CoC

·     RP will manage the affairs of Corporate Debtor;

·     Prepare information memorandum and seek LOI from Corporate applicants;

·     >66% of CoC approves, such resolution plan shall be submitted to AA;

·     If AA satisfies, approves Resolution Plan;

·     If not, shall go for liquidation;

·     If CoC approves liquidation and AA satisfies and approves liquidation, then RP shall go for liquidation.




·     180 days from admission of application;

·     90 days extension if AA satisfies;

·     270 or 330 days maximum permissible.



·     CoC does not agree on RP (Resolution Professional)

·     CoC decides to liquidate

·     NCLT rejects plan

·     Debtors contravenes plan


RP should be appointed as the liquidator by NCLT;

Unless rejected by CoC;

Powers of BoD/ Partners vest with liquidators;


Liquidator to identify the assets of the Corporate Debtor and form Liquidation Estate and hold such estate as fiduciary for the Creditors.




Liquidator to collect claims from creditors within 30 days from commencement of liquidation




Liquidator to verify claims of secured creditors and discharge the secured payments




Secured creditors to identify assets offered to them as security against the sums owed to them




Liquidator to either admit or reject claims and communicate within 3 days of such admission




Liquidator to verify such claims within such time as may specified by the Board (IBBI)


RESOLUTION It may be resolved the company after getting the Resolution Plan Excess money realized by secured creditors from the liquidation of secured assets to be accounted and remitted to Liquidator;





Any short recovery of secured debts by a secured creditor to be treated as unsecured debt and repaid in the specified order of priority




After paying off secured creditors, the unsecured debts are to be paid off in specified order of priority;




If all the assets of the Corporate Debtor are completely liquidated, the liquidator shall apply for dissolution of Corporate Debtor before NCLT;

NCLT to pass an order dissolving the Corporate Debtor from the date of such order;




Copy of order to be filed with RoC within 7 days from the date of such order;







Disclaimer – Please note that the above articles are based on the interpretation of related laws and judicial pronouncement which may differ from person to person. The readers are expected to take the expert opinion on the matter.



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