Corporate Insolvency Liquidation Processes

16 Jan 2026 --
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Corporate Insolvency – Liquidation Process under IBC

1. When Does Liquidation Begin?

Liquidation is ordered by NCLT when:

No resolution plan is approved within CIRP period

CoC decides to liquidate (66% vote)

Approved plan is contravened

Section 33, IBC

2. Appointment of Liquidator

Resolution Professional usually becomes Liquidator

Takes custody of assets

Forms liquidation estate

3. Liquidation Estate (Section 36)

Includes:

All assets of corporate debtor

Avoidance recoveries

Proceeds of asset sale

Excludes third-party assets.

4. Powers of Liquidator

Power	Description
Take control of assets	Custody and protection
Sell assets	Auction or private sale
Continue business	If beneficial
Invite & verify claims	Creditors file claims
Distribute proceeds	As per Section 53

5. Moratorium in Liquidation

Fresh suits barred under Section 33(5) without NCLT approval.

6. Claims and Verification

Liquidator:

Invites claims

Verifies claims

Admits or rejects

7. Distribution of Assets – Section 53 Waterfall

Priority order:

Insolvency & liquidation costs

Secured creditors (relinquishing security) + workmen dues (24 months)

Employees (12 months)

Unsecured financial creditors

Government dues + remaining secured creditors

Other debts

Preference shareholders

Equity shareholders

8. Secured Creditors’ Choice

They may:

Relinquish security to estate, OR

Enforce security outside liquidation

9. Dissolution

After completion:

Liquidator files report

NCLT orders dissolution

Company ceases to exist

10. Landmark Case Laws

1. Swiss Ribbons v. Union of India (SC, 2019)

Recognized liquidation as last resort after failure of resolution.

2. Essar Steel v. Satish Kumar Gupta (SC, 2019)

Emphasized resolution over liquidation but clarified distribution principles.

3. Ghanashyam Mishra & Sons v. Edelweiss ARC (SC, 2021)

Post-resolution claims extinguished — impacts liquidation understanding of finality.

4. Y. Shivram Prasad v. Dhanapal (NCLAT)

Encouraged exploring revival even during liquidation.

5. SBI v. Anuj Bajpai (NCLAT)

Discussed rights of secured creditors in liquidation.

6. Maharashtra Seamless Ltd. v. Padmanabhan Venkatesh (SC, 2020)

Valuation and commercial decisions respected.

7. Jaypee Kensington Boulevard Apartments v. NBCC (SC, 2021)

Clarified stakeholder interests and distribution approach.

11. Avoidance Actions During Liquidation

Liquidator can continue:

Preferential transaction actions

Undervalued transaction recovery

Fraudulent trading proceedings

12. Key Objectives of Liquidation

✔ Maximize value
✔ Fair distribution
✔ Time-bound exit
✔ Prevent asset stripping

Conclusion

Liquidation under IBC is:

Structured

Judicially supervised

Priority-based

Final corporate exit mechanism

It ensures creditors recover in an orderly manner when business revival is not possible.