Liquidation is what happens when the insolvency resolution process does not produce a viable plan, or when creditors decide that selling the company's assets is the better course. The NCLT passes a liquidation order, a liquidator takes charge, the assets are sold, and the proceeds are paid out in the strict order of priority set by Section 53 of the Insolvency and Bankruptcy Code. When the process is over, the company is dissolved.
The 2026 amendment changed liquidation significantly. The committee of creditors now supervises the process and can replace the liquidator. The resolution professional who ran the insolvency cannot become the liquidator. Timelines have been tightened, and statutory dues no longer rank as secured debts merely because a law gives them a charge. Whether you are a lender, an employee, a supplier or a buyer of assets, these changes affect what you can expect.
हिंदी में सारांश
जब दिवाला पà¥à¤°à¤•à¥à¤°à¤¿à¤¯à¤¾ में कोई योजना मंज़ूर नहीं होती, तो NCLT कंपनी के परिसमापन (liquidation) का आदेश देता है। लिकà¥à¤µà¤¿à¤¡à¥‡à¤Ÿà¤° संपतà¥à¤¤à¤¿ बेचकर धारा 53 के तय कà¥à¤°à¤® में à¤à¥à¤—तान करता है — पहले पà¥à¤°à¤•à¥à¤°à¤¿à¤¯à¤¾ की लागत, फिर कामगारों का बकाया और सà¥à¤°à¤•à¥à¤·à¤¿à¤¤ लेनदार, फिर करà¥à¤®à¤šà¤¾à¤°à¥€, फिर असà¥à¤°à¤•à¥à¤·à¤¿à¤¤ वितà¥à¤¤à¥€à¤¯ लेनदार, फिर सरकारी बकाया, और अंत में शेयरधारक। 2026 संशोधन के बाद CoC पà¥à¤°à¤•à¥à¤°à¤¿à¤¯à¤¾ की निगरानी करती है और परिसमापन 180 दिनों (90 दिन और) में पूरा होना है।
Is this your situation?
- The company that owes you money has been ordered into liquidation
- You are a secured lender deciding whether to give up your security or enforce it yourself
- You are an employee or workman with unpaid salary and dues
- You want to buy a plant, property or the whole business from a liquidator
- You are a promoter and want to know whether a compromise is still possible
- Your claim was rejected or reduced by the liquidator
When liquidation is ordered
No plan received or approved
If no resolution plan is received within the maximum period, or the NCLT rejects the plan, the tribunal orders liquidation. The 2026 amendment allows a one-time restoration of the process for up to 120 days with 66% of the committee's vote before that happens.
Committee decides to liquidate
The committee of creditors can decide, with 66% of the vote, to liquidate at any time before a plan is approved.
Plan breached
If the company breaches an approved plan, an affected person can apply for liquidation.
Decision within 30 days
Under the 2026 amendment, the NCLT must pass the liquidation order within 30 days of the application or intimation.
Dissolution without liquidation
After a failed process, the NCLT may order the company dissolved directly on an application by the committee with 66% of the vote, where there is little or nothing to liquidate.
Employees
A liquidation order is treated as a notice of discharge to officers, employees and workmen, except where the business is continued during liquidation.
Who gets paid first: the Section 53 waterfall
| Rank | Who | Note |
|---|---|---|
| 1 | Insolvency process costs and liquidation costs | Paid in full first |
| 2 | Workmen's dues for 24 months before liquidation, and secured creditors who relinquished security | Rank equally |
| 3 | Wages and unpaid dues of employees other than workmen for 12 months | |
| 4 | Financial debts owed to unsecured creditors | |
| 5 | Government dues for two years before liquidation, and secured creditors' shortfall after enforcing security | Rank equally |
| 6 | Any remaining debts and dues | Includes operational creditors |
| 7 | Preference shareholders | |
| 8 | Equity shareholders or partners | Receive only what remains |
Secured creditors: relinquish or enforce?
A secured creditor in liquidation has a choice. It can relinquish its security to the liquidation estate and receive proceeds at rank 2 of the waterfall, alongside workmen's dues. Or it can realise its security itself, outside the liquidation, and claim any shortfall at rank 5.
The right choice depends on the value of the security, the cost and time of enforcement, the number of other secured creditors sharing the same asset and the size of workmen's dues. The 2026 amendment adds two points worth noting: a secured creditor is treated as secured only up to the value of its security, and inter-se priority agreements among secured creditors are not disregarded in distribution.
The amendment also clarifies that a security interest exists only where it is created by agreement. A charge created merely by operation of a statute, such as some tax laws, does not make the government a secured creditor. This reverses the effect of State Tax Officer v Rainbow Papers (2022) and keeps government dues at rank 5.
How liquidation runs after 2026
Liquidation order and appointment
The NCLT orders liquidation and appoints a liquidator on the IBBI's recommendation. The resolution professional from the same process cannot be appointed. Records pass from the professional to the liquidator.
Committee supervision
The committee of creditors acts as a supervisory body with voting rights during liquidation, and can replace the liquidator with 66% of the vote.
Claims
Creditors' claims verified during the insolvency process carry forward, with the 2026 amendment cutting out duplicated verification. Fresh claims and disputes are handled under the liquidation regulations, and decisions can be challenged before the NCLT.
Valuation and sale
Assets are valued and sold, preferably as a going concern or in parcels that maximise value, through auctions or other permitted methods. Buyers must be eligible under Section 29A.
Distribution
Proceeds are distributed under the Section 53 waterfall. Secured creditors who chose to enforce their security deal with their assets separately.
Completion and dissolution
Liquidation must be completed within 180 days, extendable by up to 90 days. The liquidator then applies for dissolution, and the NCLT passes an order dissolving the company.
Buying assets from a liquidator
Going concern sales
Buying the company or a business unit as a going concern can preserve licences, contracts and employees, subject to the terms of the sale.
Eligibility
Persons barred under Section 29A cannot buy assets from the liquidator. Promoters of the company are often caught by this.
Due diligence
Liquidation sales are usually "as is where is". Check title, statutory approvals and encumbrances carefully.
Clean title
Assets sold in liquidation pass free from the company's past liabilities, subject to the sale terms and orders of the NCLT.
Time and typical cost
Fees are agreed in writing and do not depend on the amount recovered.
| Stage | Usual time | What it involves |
|---|---|---|
| Liquidation order | Within 30 days of application, by law | Hearing |
| Claims and challenges | First months of liquidation | Filing, objections before NCLT |
| Asset sales | Within the 180-day period (+90) | Valuation, auctions, eligibility checks |
| Dissolution | After final report | Application and order |
Documents to keep ready
Creditors
- Claim filed in the insolvency and its admission status
- Security documents and valuation reports (secured creditors)
- Loan or supply documents
Employees and workmen
- Appointment letters, salary slips, attendance records
- Gratuity, PF and bonus details
Buyers
- Sale notice and process document
- Section 29A eligibility affidavit
- Proof of funds and earnest money
A secured lender's choice
Here's a made-up example. A Gurugram auto-parts company went into liquidation. An NBFC held a first charge over a plot worth about Rs 9 crore against a debt of Rs 12 crore. Workmen's dues of about Rs 3 crore would share rank 2 with relinquishing secured creditors.
We modelled both options. Relinquishing would put the NBFC at rank 2 alongside workmen and a bank with security over the plant. Enforcing on its own would give it the plot's value directly, with a shortfall claim at rank 5. Because the plot was marketable and the NBFC's charge was exclusive, we advised enforcement. The NBFC realised the plot through a sale and lodged its shortfall claim with the liquidator.
Mistakes creditors make in liquidation
- Late decisions on security: secured creditors must tell the liquidator whether they will relinquish or enforce security within the time allowed. Indecision can lead to a default treatment.
- Not checking the valuation: low valuations lead to low reserve prices. Creditors on the supervising committee should test them.
- Ignoring going concern options: selling the business as a whole often yields more than piecemeal sales. Press for it where viable.
- Assuming statutory dues are secured: after the 2026 amendment, a charge created only by law does not make dues secured. This affects the waterfall.
- Forgetting guarantors: liquidation of the company does not release personal guarantors. Recovery from them can continue.
Key terms in plain words
| Term | What it means |
|---|---|
| Liquidator | The insolvency professional who sells assets and distributes proceeds |
| Liquidation estate | The assets available for distribution, excluding certain third-party and employee funds |
| Relinquishment | A secured creditor giving up its security to the estate in exchange for rank 2 in the waterfall |
| Going concern sale | Sale of the company or a business unit as a running operation |
| Dissolution | The final end of the company's legal existence by NCLT order |
| Workmen | Employees doing manual, technical or clerical work, with priority for 24 months' dues |
Employees and workmen in liquidation
Workmen's dues for the 24 months before the liquidation commencement date rank alongside secured creditors who relinquish their security, near the top of the waterfall. Dues of other employees for 12 months follow. Provident fund, pension and gratuity funds are not part of the liquidation estate, which means amounts in those funds belong to employees and are not shared with creditors. Employees should file their claims promptly with supporting records. Where the business is sold as a going concern, the buyer may continue employment on terms set out in the sale.
Checklist for a creditor in liquidation
- File or update your claim with the liquidator within the time in the public announcement
- If secured, decide whether to relinquish security or realise it yourself
- If realising security, inform the liquidator and pay the CIRP and liquidation costs share
- Track the committee meetings that, since 2026, supervise the liquidator
- Review the asset sale notices and reserve prices
- Object to sales at undervalue, with evidence
- Check the distribution against the Section 53 order of priority
- Diary the time limit for appeals against the liquidator's decisions
Sale as a going concern
Liquidation does not always mean the end of a business. The Liquidation Regulations allow the liquidator to sell the corporate debtor as a going concern, or a business of the corporate debtor as a going concern. Where the business is sold as a going concern, the buyer can take it with its employees and contracts, and in some cases the company itself survives with a new owner.
A sale as a going concern often brings a better price, keeps jobs and gives creditors more. Buyers must be eligible under Section 29A, as the Supreme Court has held. If you are an investor interested in a business in liquidation, early engagement with the liquidator and the supervising committee is key. See compromise and arrangement for another route.
Workers' dues in a liquidation
Here's a made-up example. A Faridabad engineering company went into liquidation after its CIRP failed. Around 200 workers had unpaid wages for the last six months and accumulated gratuity.
Under Section 53, workmen's dues for 24 months before liquidation rank equally with secured creditors who relinquished their security. Provident fund and gratuity amounts held for workers are not part of the liquidation estate at all, under Section 36(4). We helped the workers' union file claims with proper documents and pointed out to the liquidator that provident fund and gratuity must be paid separately. The liquidator accepted this, and the workers received their wages share and their full provident fund and gratuity.
Frequently Asked Questions
When does a company go into liquidation?
When no resolution plan is approved within the time allowed, when the committee decides to liquidate, or when an approved plan is breached.
Who is paid first in liquidation?
Insolvency and liquidation costs, then workmen's dues (24 months) and secured creditors who relinquished security, followed by other employees, unsecured financial creditors, government dues and others.
Are government dues secured?
After the 2026 amendment, a statutory charge alone does not make government dues secured. They rank at level 5 with secured creditors' shortfall.
Can the committee change the liquidator?
Yes, with 66% of the vote, under the 2026 amendment.
How long does liquidation take?
The amended Code requires completion within 180 days, extendable by up to 90 days.
Can promoters buy the assets?
Not if they are ineligible under Section 29A, which is often the case.
Can liquidation be avoided at the last minute?
The 2026 amendment allows a one-time restoration of the insolvency process for up to 120 days with 66% of the committee's vote, if a viable plan is in sight.
How are your fees decided?
By the work involved, agreed in writing. They do not depend on the result.
Dealing With a Company in Liquidation?
Tell us whether you are a creditor, employee or buyer and share the liquidation order. We will explain where you stand and what to do next.
This page gives general information about the law as it stood when it was last reviewed. It is not legal advice on your case and does not promise any result. IBC rules and NCLT procedures change often, so outcomes depend on your own documents, dates and facts.
Need help with Liquidation Proceedings?
Send us the notice, the petition or the order. We will tell you where you stand, which bench hears it and the date the next step is due, in plain words.
