This article is written by Sonali Panigrahi, Lingaraj Law College, 2nd year LLB student, during her internship at LeDroit India.
Scope of the Article- This article undertakes an in-depth analysis of the complex legal landscape surrounding the winding up of multinational corporations (MNCs), with special focus on cross-border insolvency conflicts and the continuing liability of companies after dissolution. It aims to evaluate both statutory frameworks and judicial interpretations to determine how far corporate “death” truly extends in law.
Content –
1. Corporate Dissolution
2. Cross-border winding up of Multinational Corporations
3. Post-dissolution liability and the question of Corporate Afterlife
4. Policy and Reform directions
5. Conclusion
ABSTRACT
More often than not, the lapse of multinational corporations ends up in a rabbit warren of cross-border legal issues. This brings the issue of existing insolvency and post-dissolution liability schemata into attention. As global commerce integrates, inconsistencies around the recognition of foreign liquidation orders, competing creditor claims and the survival of liabilities after corporate dissolution, have become increasingly complex.
This article explores the Companies Act, 2013 and the Insolvency and Bankruptcy Code, 2016, focusing on the jurisdictional and procedural tensions emerging from cross-border insolvency. The article explores whether a company can truly “die” in law or continue to bear accountability post-dissolution. The article concludes by advocating for a harmonised cross-border insolvency regime and a clarified statutory structure for post-dissolution liability, ensuring equitable treatment of creditors and transnational justice in corporate liquidations.
Key words: Cross-border insolvency | Multinational Corporations | Post-dissolution liability | Companies Act
INTRODUCTION
The dissolution of a company has traditionally been approved as its legal death. The reasoning behind this practice is that the moment a corporate body is disintegrated, it stops being a juristic person. Yet, in a globalised economy, the process of winding up multinational corporations rarely happens within neat territorial boundaries. When the assets, creditors and operations are spanning across different geographies and jurisdictions, it is natural for the big question to arise- Which law governs the corporate demise?
In India, this process is primarily administered through the Company Act, 2013 and the Insolvency and Bankruptcy Code, 2016. Both of them have their own approach regarding this matter. The former provides for voluntary and tribunal led dissolution, whereas the latter introduces a creditor centric resolution mechanism. Nevertheless, neither statute offers a comprehensive solution for cross-border liquidation, especially when foreign courts and liquidators and involved.
These challenges become more pronounced in the context of multinational corporate groups, where subsidiaries, holding companies, and transnational creditors interact within differing regulatory ecosystems. The absence of a unified cross-border insolvency framework under the IBC, despite the adoption of the UNCITRAL Model Law in several advanced jurisdictions, has left Indian law ill-equipped to handle multi-jurisdictional liquidations effectively.
This article seeks to trace how the legal notion of corporate death evolves when confronted with transnational realities. It argues that corporate dissolution is not the end of legal accountability but a transition point in determining how far the reach of justice extends beyond the company’s formal existence.
CORPORATE DISSOLUTION
1.1. The Legal Nature of Corporate Personality – The concept of winding up develops out of the idea that a company is a separate legal person, who possesses rights and liabilities distinct from its members. Corporate dissolution represents the legal death of this artificial person. Unlike natural persons, companies do not cease biologically but through a legally orchestrated process. That involves asset realisation, creditor settlement and statutory formalities.
Classical corporate jurisprudence, be it from Salomon vs A.Salomon & Co. Ltd. Or the Indian adaptation under the 1956 Companies Act, has treated dissolution as the final and irreversible termination of legal existence. Contemporary corporate law acknowledges situations where a company may be revived or restored after dissolution. Hence, it will be wise to say that corporate death is not absolute and can be reversible under certain statutory conditions.
1.2. Evolution of Winding Up mechanisms under Indian Law – The law in India has traditionally provided two pathways for winding up. One of them is Voluntary and the other one is Compulsory. India currently has a two-track regime. In voluntary closure, solvent companies use it under Sections 304-323 of the Companies Act. This process puts emphasis on shareholder autonomy and creditor-driven restructuring. On the other hand, some companies end up getting wound up by the tribunal. It is executed under Section 271 of the Companies Act, 2013 due to events such as fraudulent conduct, financial inability or statutory non-compliance. Insolvent companies are closed down using the Insolvency and Bankruptcy Code, 2016 by the tribunals.
1.2.1. Under Companies Act, 2013 – Under Section 271, the National Company Law tribunal may order to dissolve a company on the grounds of fraudulent conduct of affairs, oppression or mismanagement, failure to file financial statements, or acting against national interests. Subsidiaries of the MNCs often trigger these provisions where there are allegations of siphoning funds to offshore entities, violation of foreign exchange regulations, or carrying out illegal cross-border transactions.
After the 2016 amendments, voluntary winding up under the Companies Act is available only to solvent companies that wish to close operations without creditor disputes. Although limited in scope today, this route remains relevant for foreign corporations that maintain minimal Indian presence and seek administrative closure. However, regulations remains strict, requiring declarations of solvency, settlement of all dues, and filings before the Registrar of Companies.
Striking off under Section 248 is another mechanism allowing removal of defunct companies from the register. Given India’s position as a base for thousands of foreign subsidiaries and liaison offices, this provision is frequently used by MNC groups seeking quick exit. Yet, its ease of use is counterbalanced by Section 252, which allows courts to restore dissolved companies when liabilities or litigation are discovered later. This mechanism plays a crucial role in post-dissolution liability, especially for multinational operations where foreign claims arise belatedly.
1.2.2. Under Insolvency and Bankruptcy Code, 2016 – The IBC is the dominant statute for winding up in India. It is designed to ensure time-bound resolution or liquidation of financially distressed companies. For MNCs and large corporations operating across borders, the IBC’s framework typically becomes the primary pathway due to the code’s emphasis on creditor rights, collective processes, and judicial oversight.
When an MNC or Indian subsidiary defaults on financial obligations, creditors may initiate Corporate Insolvency Resolution under Sections 7, 9, or 10. This creates a moratorium under Section 14, halting litigation across jurisdictions. However, enforcement of this moratorium outside India remains uncertain due to the lack of a statutory cross-border framework.
If resolution fails, liquidation is ordered under Chapter III of the IBC. Here, the liquidation waterfall under Section 53 dictates creditor priority, often clashing with foreign insolvency regimes. Upon completion, the company is dissolved under Section 54, but this dissolution is not final in cases requiring revival to pursue or defend outstanding claims.
Although Sections 234 and 235 of the IBC allow the Indian government to enter bilateral insolvency cooperation agreements, no such treaties exist in practice. India has not yet adopted the UNCITRAL Model Law, leaving courts to rely on judicial discretion in cases like Jet Airways (India) N.V. Thus, liquidation of multinational groups proceeds without stable mechanisms for recognition of foreign processes, access to overseas assets, or coordination with foreign administrators.
CROSS-BORDER WINDING UP OF INDIAN COMPANIES
Closing down a company becomes more complex when the corporation is operating across multiple countries. MNCs generally have subsidiaries, branches, multiple bank accounts, intellectual property, contracts, and employees across countries they operate at. Each country is governed by their own distinct framework. In such situations, the company has to keep the domestic law, foreign legal requirements and international cooperation mechanisms in mind. No matter in which way a company closes, the process directly affects creditors, investors, shareholders, employees and regulators.
2.1. Voluntary winding up of Solvent MNCs – For companies which are solvent, voluntary closing down is executed under the Indian Companies Act, 2013. It allows members to initiate dissolution with the declaration that the company can meet all its obligations. For domestic companies, this process is very straightforward. But for Multinational corporations, it becomes a hassle to undergo compliance in every jurisdiction they are operating at. Directors and appointed liquidators ensure that assets that are located outside India, say foreign bank accounts, IP, real estate etc., are identified, evaluated and legally transferable to satisfy the claims of creditors. This involves compliance with local court procedures, regulatory approvals, and statutory filings in multiple countries.
In such cases, notifying the foreign creditors becomes absolutely necessary. If a creditor in foreign jurisdiction is not informed properly, then they may initiate independent legal proceedings. These mishaps create conflicts and can cause issues in the winding up process of the company. Even when a company is fully solvent, fragmented legal frameworks result in delays, increase in cost, and reputational risks, as liquidators must navigate both the Indian and foreign laws to avoid breaching any fiduciary duties.
2.2. Winding up of Insolvent MNCs – When a company becomes insolvent and cannot pay its debts, voluntary winding up is unavailable and tribunal intervention becomes necessary. It is initiated by either the creditors or by the regulatory authority or tribunal itself. It ensures equitable treatment of creditors and oversight of the liquidation process. In the cross-border context, however, tribunal-ordered winding up exposes the company and stakeholders to significant jurisdictional fragmentation. Indian tribunals can direct the liquidation of domestic assets and supervise domestic creditor claims, but assets and obligations located abroad often require independent foreign proceedings. This fragmentation can result in parallel or conflicting proceedings, delayed realisations, and unpredictable creditor recoveries.
When an Indian company with significant foreign exposure enters insolvency, the process typically begins under the Insolvency and Bankruptcy Code, 2016. Although the IBC includes Sections 234 and 235 to enable cross-border cooperation, India has not fully operationalised these because no comprehensive bilateral treaties or reciprocal frameworks have been adopted.
One prominent example is the Jet Airways insolvency case, where Indian tribunals coordinated with Dutch trustees to address claims arising from European operations. The Indian NCLAT recognised the foreign trustee’s limited participation in the Committee of Creditors, but the process required careful negotiation of jurisdictional authority, priority rules, and timelines.
POST-DISSOLUTION LIABILITY
The formal closure of a company doesn’t always mark the end of legal obligations. Even after a company is dissolved, liabilities can survive in certain circumstances. These situations expose directors and shareholders to continuing obligations. These post-dissolution liabilities end up acting like a legal safeguard for creditors, employees, regulatory authorities and other stakeholders, by ensuring that corporate dissolution is not used as a shield for avoiding legal or statutory responsibilities.
3.1. Legal basis – Under the Companies Act, 2013, especially the sections 35, 36, 271 and 448, and relevant IBC provisions, certain liabilities continue even after dissolution. Directors can be held personally liable if they continued to operate the company while knowing it could not meet its debts or acted with intent to defraud creditors. Even after dissolution obligations such as- taxes, employee contribution to provident funds etc., continue until they are properly discharged.
In case the company’s operations caused environmental damage or violated any regulatory norm, liabilities will definitely not vanish into thin air after the company winds up. Indian courts have clarified it at many occassions that dissolution does not provide immunity from pre-exisiting obligations. A good example of this would be the infamous ABG Shipyard Ltd. Case.As held by the NCLT and NCLAT, directors could be summoned even after dissolution in case of fraud, preferntial transactions and failure to maintain proper records.
Directors must maintain proper records, comply with any regulations and act in good faith until all claims are settled. Failure can lead to civil or criminal liability as we have seen in cases like Macquarie Bank Ltd. Vs Shilpi Cable Technologies Ltd., where the foreign creditors began insolvency proceedings against the Indian company and directors were held accountable for preferential transactions and fradulent management.
3.2. Cross-border dimensions – For multinational companies, liabilities after dissolution become more troublesome. A company might have been dissolved in its home jurisdiction, but it would not stop the foreign creditors, regulators or courts from pursuing claims.
Even after domestic dissolution, foreign creditors can initiate proceedings in local courts if the company operated there or held any asset there. Now the Indian court might need to revive a dissolved company under section 356 to adress the claims raising abroad. The directors who managed those operations may be held personally liable in foreign courts if obligations were breached, even if Indian winding up was completed.
Suppose Б is an Indian IT firm which has subsidiaries Д and П in London and Singapore, respectively. If the Indian entity completes voluntary dissolution while being solvent, but one unpaid vendor claim exists in the UK, the vendor can pursue the Singapore or UK entity’s directors or related corporate structures. The liquidation in India will have to cooperate with foreign regulators to ensure that claims are settled and that directors are not exposed to additional liabilities.
3.3. Issues and concerns – Cross-border recognition of post-dissolution liabilities is, in one word. Patchy. The reason behind is that India lacks a fully operational UNCITRAL based framework to enforce foreign insolvency or liquidation orders. In certain cases, the courts may order the revival of a dissolved company to fulfill the obligations. This process is regulation heavy and increases the cost for the corporation in question. The stakeholders also struggle to determine which liabilities survive the dissolution and which ones perish. It also poses a big challenge for creditors. Where should they even pursue the claims?
THE WAY FORWARD
It is not unknown that India’s current legal regime regarding dissolution of corporations is split among the Companies Act and the Insolvency and Bankruptcy code. This makes the system fragmented, unpredictable and inconsistent when it comes to institutions. To handle the winding up and post-dissolution liability (especially when it involves multinational companies), we need a few structural reforms. Some ideas may be listed as follows:
5.1. Adoption of the UNCITRAL Model Law with safeguards specific to India – A formal adoption of the UNCITRAL Model law via the pending amendments to the Insolvency and Bankruptcy code, could be a good reform. There are various principles, such as the Center of Main Interests, recognition of foreign proceedings and mandatory cooperation, which can help make the cases involving MNCs a bit more predictable and transparent. All of this should be done by keeping in mind the public policy caveats, including protection of statutory dues, employee claims, and domestic financial stability, so that foreign cooperation doesn’t compromise sovereign priorities.
5.2. Statutory framework for post dissolution liability – Indian law remains ambiguous on the survival of liabilities after a foreign corporate dissolution. The parliament must codify continuation of tax, environmental, labour and financial liabilities, regardless of foreign dissolution; access to indemnification pools, insurance and guarantees from parent company and mandatory disclosure for group companies, so that shell dissolutions in tax havens cannot extinguish domestic responsibilities.
5.3. Mandatory group insolvency and enterprise liability rules – MNCs have dozens of subsidiaries across many countries and hence it becomes easy to shift assets or liabilities. India needs a statutory recognition of group insolvency to process related entities together, amd enterprse wide liability principles that prevent parent companies from escaping obligations through layers of corporate structures.
CONCLUSION
Cross-border insolvency and post-dissolution liability presents one of the most complex legal challenges for India’s corporate and insolvency framework. In a globalised economy where MNCs routinely operate through multi-jurisdictional structures, the absence of a coherent statutory framework leaves Indian creditors, regulators, and courts vulnerable to uncertainty and strategic evasions. Reliance on judicial improvisation cannot substitute for a comprehensive statutory architecture.
For India to remain a trustworthy and competitive jurisdiction in international commerce, it must embrace structured cooperation, predictable rules, and robust safeguards. Adopting the UNCITRAL Model Law with India-specific modifications, creating clear statutory rules for post-dissolution liabilities, strengthening cross-border coordination mechanisms, and developing group insolvency tools are necessities.
References –
1.The Companies Act, 2013
2.Insolvency and Bankruptcy Code, 2016
3.UNCITRAL Model Law
4.Macquarie Bank Limited vs Shilpi Cable Technologies Ltd, AIR 2018 SUPREME COURT 498
5.Sundaresh Bhatt, Liquidator Of Abg Shipyard vs Central Board Of Indirect Taxes And Customs , CIVIL APPEAL No. 7667 of 2021 SC
