Part II, Chapter III — Liquidation Process

When liquidation replaces resolution, the liquidator's powers, and the Section 53 waterfall.

When liquidation is ordered

NCLT orders liquidation under Section 33 where the CoC resolves (66% vote) that the corporate debtor be liquidated before or after the resolution-plan stage, where no resolution plan is received or approved within the CIRP timeline, or where an approved plan is contravened.

Liquidator's powers

The liquidator (typically the same RP, unless replaced) takes custody of all assets, may carry on the business for beneficial liquidation, sell assets (as a going concern or piecemeal), and consolidate claims — functioning broadly like a company-law official liquidator but under the Code's own timeline and reporting discipline (IBBI Liquidation Process Regulations, 2016).

Section 53 waterfall

Liquidation proceeds are distributed in a strict statutory order: (1) insolvency resolution/liquidation process costs; (2) workmen's dues (24 months) and secured creditors who relinquish security, ranking equally; (3) wages/unpaid dues of other employees (12 months); (4) unsecured financial creditors; (5) government dues and remaining secured-creditor debt (after enforcing security); (6) any remaining debts/dues; (7) preference shareholders; (8) equity shareholders/partners — each class paid in full before the next class receives anything, and pro rata within a class if funds are insufficient.

Voluntary liquidation

A solvent corporate person may liquidate voluntarily under Section 59 (distinct from Section 33's insolvency-driven liquidation), requiring a declaration of solvency by directors, special resolution by members, and appointment of a liquidator — governed by the IBBI Voluntary Liquidation Process Regulations, 2017, with its own faster timeline since there is no creditor dispute to resolve.

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