Analysis of the amendment done by IBBI in Insolvency and Bankruptcy Board of India (Liquidation Process) (Amendment) Regulations, 2019 wef 25th July 2019.

The IBBI has issued Notification dated 25th July 2019 amending Liquidation Process under IBC 2016, in consonance with existing CIR process under IBC 2016. These amendments are applicable wef 25th July 2019. The essential features of all these amendments are as follows:-

1. The concept of `CONSULTATION COMMITTEE has been introduced by amending definition under regulation 2 in consonance with Committee of Creditors in CIR process

1.1 CONSULTATION COMMITTEE means the stakeholders’ consultation committee constituted under sub-regulation (1) of regulation 31A

2. The definition of Liquidation Cost has been enlarged by including the following 4 new clauses by amending definition under regulation 2(ca):-

2.1 costs incurred by the liquidator for preserving and protecting the assets, properties, effects and actionable claims, including secured assets, of the corporate debtor;

2.2 costs incurred by the liquidator in carrying on the business of the corporate debtor as a going concern;

2.3 the amount repayable to contributories under sub-regulation (3) of regulation 2A;

2.4 any other cost incurred by the liquidator which is essential for completing the liquidation process:

However if any cost incurred by the liquidator in relation to compromise or arrangement under section 230 of the Companies Act, 2013 (18 of 2013) shall be excluded.

3. New sub regulation 2A has been added whereas it has been asked to financial creditors to contribute the excess of the liquidation costs over the liquid assets of the corporate debtor, as estimated by liquidator in proportion of debts to them in an escrow account within 7 days.

3.1 However it shall be repayable back with interest at bank rate referred to in section 49 of the Reserve Bank of India Act, 1934 (2 of 1934) as part of liquidation cost

This will certainly help in two ways, one way the liquidator need not to spend money from his own resources as is being done presently and secondly claimant shall be cautious in submission of their claims where no recovery is possible.

4. New sub regulation 2A has been added whereas to complete the compromise or arrangement is proposed under section 230 of the Companies Act, 2013 (18 of 2013) within 90 days only and this period shall not be included in the liquidation period. The cost shall be borne by C.D. or parties purposing compromise as per regulation 2B (3).

5. Amendment in Liquidation fees under regulation has been brought whereas scope of Liquidator fees has been enlarged under regulation 4 by including fees payable equivalent to R.P. fees in case of compromise or arrangement etc. However this amendment is effective for compromise or arrangement etc started after 25th July 2019.

6. An important amendment is also brought in submission of claims by amending regulation 12(2) & 16 whereas now stakeholders either submit their fresh claims or update their claims submitted during CIR process within 30 days. It means no new documentary evidence to substantiate claims required to be submitted & documents submitted during CIR process may be used alongwith increasing the amount with applicable interest rate only.

7. New sub regulation 21A has been added whereas duty has been casted on secured creditor to inform within 30 days of realization of his security interest by him otherwise underlying security shall form part of common liquidation estate in form C or D.

8. The most important new sub regulation 31A has been added whereas now liquidator shall constitute a consultation committee within sixty days from the liquidation commencement date. Further under sub regulation 2, the composition of consultation committee has also been defined as follows:-

Class of

Stakeholders

Description Number of Representatives
(1) (2) (3)
Secured financial creditors, who have relinquished their security interests under section 52 Where claims of such creditors admitted during the liquidation process is less than 50% of liquidation value Number of creditors in the category, subject to a maximum of 2
Where claims of such creditors admitted during the liquidation process is at least 50% of liquidation value Number of creditors in the category, subject to a maximum of 4
Unsecured financial creditors Where claims of such creditors admitted during the liquidation process is less than 25% of liquidation value Number of creditors in the category, subject to a maximum of 1
Where claims of such creditors admitted during the liquidation process is at least 25% of liquidation value Number of creditors in the category, subject to a maximum of 2
Workmen and employees 1 1
Governments 1 1
Operational creditors other than Workmen, employees and Governments Where claims of such creditors admitted during the liquidation process is less than 25% of liquidation value Number of creditors in the category, subject to a maximum of 1
Where claims of such creditors admitted during the liquidation process is at least 25% of liquidation value Number of creditors in the category, subject to a maximum of 2
Shareholders or partners, if any 1

8.1 Sub regulation (3) to (10) has been added to regulation 31A which shall define the nomination in committee, accessibility of record, convening of meeting, unbinding advice to liquidator etc.

9. New sub regulation 32A has been added with the objective to sell C.D. as going concern either earlier as per recommendation of COC or in consultation with Consultation Committee later on within 90 days of commencement of liquidation. In case Liquidator isn’t able to sell than he may sell them as under clauses (a) to (d) of regulation 32 in standalone, slump, collective or parcel basis.

10. Earlier if valuation of assets have been done under CIR process than Liquidator was not required to do valuation under regulation 35. However now liquidator if feels of fresh valuation than he may get it done despite being already earlier done.

11. Earlier Liquidator was required to distribute proceeds from realization within six months which has been reduced to 90 days now as per amended Regulation 42(2)

12. The biggest change has been brought by amending regulation 44 whereas Liquidator has to complete Liquidation within period of 1 year instead of earlier 2 years. Further no delay due to pendency of any application with Adjudicating Authority for preferential, undervalued, defrauding or extortionate transaction shall be permitted.

13. The content of final report has been formalized by prescribing Form H which is required to be submitted by Liquidator to Adjudicating Authority under Regulation 45(3).

14. New regulation 47 has been added in line with CIR process regulation prescribing time line during Liquidation Process. This is an excellent summarization of all liquidation process with time line.

15. Schedule 1 paragraph 1 sub clause 4 has been amended to facilitate reduction of reserve price by 10 % in all subsequent auctions. Earlier there was no such provision and Liquidator has to resort to revaluation in case of non receipt of 75 % of reserve price.

16. Schedule 1 paragraph 12 has been amended whereas now highest bidder may give consideration within 90 days instead of 15 days subject to payment of 12% interest after 30 days. Further sale shall be cancelled on non receipt of money within 90 days.

IBBI has brought sweeping changes in the whole Liquidation process and changes like reduction in liquidation time from 2 years to 1 year, financing of liquidation expenses by Financial Institution and introduction of Form H, Timeline etc is welcome step. However IBBI need to clarify that how all these changes shall be brought in the existing liquidation processes or it shall be applicable for liquidation after 25th July 2019 only. The lengthy process of constitution of consultation committee with only advisory role is definitely against the concept of `ease of doing business’. Liquidator shall face real challenges in completion of Liquidation process with in 1 year for a company on death bed surrounded by so many advisors alongwith statutory compliances against fees receivable in future.

E-Mail:- anandmanoja@gmail.com

Author Bio

Qualification: CA in Practice
Company: M.K.Anand & Associates
Location: Naraina, New Delhi, IN
Member Since: 29 Jul 2019 | Total Posts: 6
Manoj Kumar Anand is Delhi based Chartered Accountant and Insolvency Professional and involved in around 12 assignments as IRP/RP/Liquidator/Process Advisor under IBC 2016. He is also associated with Decode Insolvency an IPE and has co-authored a book on Valuation and is founder President of `AIIPA View Full Profile

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