Regulation 2B of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 [‘Liquidation Regulations’] prescribes the procedure for undertaking a compromise or arrangement during the liquidation process. As per this regulation, where a compromise or arrangement is proposed under Section 230 of the Companies Act, 2013, it must be completed within 90 days from the liquidation order passed under Section 33 of the Insolvency and Bankruptcy Code (IBC).
Regulation 2B(1) read as under-
“(1) Where a compromise or arrangement is proposed under section 230 of the Companies Act, 2013 (18 of 2013), it shall be completed within ninety days of the order of liquidation under section 33.”
This means the entire process of compromise or arrangement, if any proposed, must conclude, whether successfully or not, within 90 days from the liquidation commencement order.
It is pertinent to mention that the first proviso to Regulation 2B was inserted vide Notification No. IBBI/2019-20/GN/REG 053, dated 06.01.2020, which provides that ‘a person who is not eligible under the Code to submit a resolution plan for insolvency resolution of the corporate debtor, shall not be a party in any manner to a compromise or arrangement’. The primary purpose of this amendment was to prevent ineligible persons under Section 29A of IBC from regaining control of the corporate debtor through a compromise or arrangement route during liquidation.
Also, the second proviso to Regulation 2B was inserted vide Notification No. IBBI/2022-23/GN/REG 094, dated 16.09.2022 (effective from 16.09.2022), which reads as under:
“Provided further that where the recommendation to explore proposal of compromise or arrangement has been made by the committee under regulation 39BA of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, the liquidator shall file the proposal within thirty days of the order of liquidation.”
If the Committee of Creditors (CoC) had recommended exploring a compromise or arrangement under Regulation 39BA of the CIRP Regulations before liquidation commenced, this amendment ensures that the liquidator must act promptly on that recommendation, without requiring fresh deliberations. The liquidator shall file the proposal for compromise or arrangement only where a recommendation to explore such a proposal has been made by the CoC under Regulation 39BA.
It is pertinent to mention that with the aforesaid amendment a new Regulation 39BA in the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 [‘CIRP Regulations’] was inserted vide Notification No. IBBI/2022-23/GN/REG 093, dated 16.09.2022 (effective from 16.09.2022), which reads as under:
“Regulation 39BA: Assessment of Compromise or Arrangement.
39BA. (1) While deciding to liquidate the corporate debtor under section 33, the committee shall examine whether to explore compromise or arrangement as referred to under sub -regulation (1) of regulation 2B of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulation, 2016 and the resolution professional shall submit the committee’s recommendation to the Adjudicating Authority while filing application under section 33.
(2) Where a recommendation has been made under sub-regulation (1), the resolution professional and the committee shall keep exploring the possibility of compromise or arrangement during the period the application to liquidate the corporate debtor is pending before the Adjudicating Authority.”
Regulation 39BA of CIRP Regulations provides for the assessment of the feasibility of a compromise or arrangement during the corporate insolvency resolution process (CIRP). Regulation 39BA(1) specifically mandates that, while deciding to liquidate the corporate debtor under Section 33 of IBC, the CoC shall assess whether it is appropriate to explore the possibility of a compromise or arrangement as referred to under Regulation 2B(1) of Liquidation Regulations. The resolution professional is required to submit the CoC’s recommendation regarding the compromise or arrangement to the Adjudicating Authority (NCLT) at the time of filing the liquidation application under Section 33.
Regulation 39BA(2) provides that where a recommendation to explore a compromise or arrangement has been made under sub-regulation (1), the resolution professional and the CoC shall continue exploring the possibility of such compromise or arrangement during the period in which the application for liquidation of the corporate debtor remains pending before the Adjudicating Authority.
The regulation encourages the CoC and the Resolution Professional to actively pursue any viable compromise or arrangement proposals until the liquidation order is passed by the Adjudicating Authority, thereby preventing premature closure of potential revival opportunities.
Subsequently, the second proviso to Regulation 2B was substituted vide Notification No. IBBI/2023-24/GN/REG 112, dated 12.02.2024 (effective from 12.02.2024), which now reads as follows::
“Provided further that the liquidator shall file the proposal of compromise or arrangement only in cases where such recommendation has been made by the committee under regulation 39BA of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016:
Provided further that the liquidator shall not file such proposal after expiry of thirty days from the liquidation commencement date.”
The amendment makes it mandatory that the liquidator can file a proposal for compromise or arrangement only if recommended by the CoC, as recorded under Regulation 39BA. This acts as a safeguard against any unilateral decision by the liquidator. Additionally, by prescribing that the liquidator must file such a proposal within 30 days from the liquidation commencement date, the amendment ensures strict adherence to timelines, leaving no scope for filing the proposal after the expiry of the thirty-day period.
Regulation 2B(1) of Liquidation Regulations provides that the entire process of compromise or arrangement, if proposed, must be completed within 90 days from the date of the liquidation commencement order, irrespective of whether it concludes successfully or not. Regulation 2B(2) further clarifies that the time taken for such compromise or arrangement process, subject to the maximum limit of ninety days, shall not be counted as part of the liquidation period.
Regulation 2B(2) read as under-
“(2) The time taken on compromise or arrangement, not exceeding ninety days, shall not be included in the liquidation period.”
Further Regulation 2B(3) of Liquidation Regulations provides that any cost incurred by the liquidator in connection with the compromise or arrangement process shall be borne by the corporate debtor, where such compromise or arrangement is sanctioned by the Tribunal under sub-section (6) of Section 230 of the Companies Act, 2013. However, where the compromise or arrangement is not sanctioned by the Tribunal under the said provision, the cost shall be borne by the parties who proposed the compromise or arrangement.
Conclusion: Regulation 2B clearly provides for a mandatory recommendation from the CoC for initiating a compromise or arrangement. It also prescribes strict timelines—requiring the liquidator to file the proposal within 30 days of the liquidation commencement date and ensuring its completion within 90 days from the liquidation commencement date. Additionally, it ensures the exclusion of ineligible persons under Section 29A of the Insolvency and Bankruptcy Code, 2016, maintaining the integrity and transparency of the process.
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