Introduction: Insolvency and Bankruptcy Board of India (IBBI) has announced significant amendments to the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. These changes, published as the Insolvency and Bankruptcy Board of India (Liquidation Process) (Amendment) Regulations, 2024, on February 12th, 2024, aim to refine and streamline the liquidation process. This article provides a comprehensive overview of the amendments, their implications, and the expected outcomes for stakeholders involved in the liquidation process.
Detailed Analysis
Key Amendments Overview:
1. Enhanced Role of the Committee: One of the standout features of the 2024 amendments is the increased involvement of the consultation committee in various stages of the liquidation process. This includes decisions on compromise or arrangement proposals, early dissolution, and continuation of the corporate debtor as a going concern.
2. Filing of Proposal for Compromise or Arrangement: The amendments specify that the liquidator can file a proposal for compromise or arrangement only with the backing of the committee and within 30 days from the liquidation commencement date, tightening the timeframe and ensuring a more efficient process.
3. Consultation Committee’s Advice for Early Dissolution: Before applying for early dissolution, the liquidator must now consult the consultation committee, enhancing the decision-making process with more checks and balances.
4. Marketing Strategy Review and Legal Proceedings: The amendments introduce provisions for reviewing marketing strategies in case of sale failures and guidelines for the continuation or initiation of legal proceedings by or against the corporate debtor, ensuring that such actions are economically justified.
5. Quarterly Meetings and Reporting: Liquidators are required to convene at least one meeting with the consultation committee every quarter and present detailed reports on liquidation costs, legal proceedings, and process progress, promoting regular oversight and transparency.
6. Valuation and Sale Process Adjustments: The amendments provide clear guidelines on asset valuation and sale, including the adjustment of reserve prices and the process for selling the corporate debtor as a going concern, aimed at maximizing the value recovered from liquidation.
7. Exclusion of Certain Assets from Liquidation Estate: Specifically, assets given to allottees in real estate projects will not form part of the liquidation estate, addressing concerns specific to the real estate sector.
Conclusion: The IBBI’s 2024 amendments to the Liquidation Process Regulations represent a significant step towards making the liquidation process more structured, transparent, and efficient. By increasing the involvement of consultation committees, tightening timelines, and providing clear guidelines for various aspects of the process, these changes aim to improve outcomes for all stakeholders involved. It is crucial for practitioners and parties involved in liquidation processes to familiarize themselves with these amendments to navigate the complexities of liquidation under the Insolvency and Bankruptcy Code, 2016, effectively.
Professionals and stakeholders are encouraged to review these changes in detail and consider their implications for ongoing and future liquidation proceedings. The amendments reflect the IBBI’s commitment to enhancing the insolvency resolution framework in India and ensuring that liquidation processes are conducted in a transparent, efficient, and equitable manner.
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INSOLVENCY AND BANKRUPTCY BOARD OF INDIA
NOTIFICATION
New Delhi, the 12th February, 2024
Insolvency and Bankruptcy Board of India (Liquidation Process) (Amendment) Regulations, 2024
No. IBBI/2023-24/GN/REG112.—In exercise of the powers conferred by clause (t) of sub-section (1) of section 196 read with section 240 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), the Insolvency and Bankruptcy Board of India hereby makes the following regulations to further amend the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, namely: –
1. (1) These Regulations may be called the Insolvency and Bankruptcy Board of India (Liquidation Process) (Amendment) Regulations, 2024.
(2) They shall come into force on the date of their publication in the Official Gazette.
2. In the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 (hereinafter referred to as ‘the principal regulations’), in regulation 2B, in sub-regulation (1), for the second proviso, the following provisos shall be substituted, namely:-
“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.”
3. In the principal regulations, in regulation 14, for the words “he may apply to the Adjudicating Authority”, the words “he shall consult the consultation committee and if it advises for early dissolution, he may apply, along with a detailed report incorporating the views of the consultation committee, to the Adjudicating Authority”, shall be substituted.
4. In the principal regulations, in regulation 31A,
(i) in sub-regulation (1),
(a) in clause (e), for the word and mark “distributed.”, the word and mark “distributed;”, shall be substituted.
(b) after clause (e), the following clauses shall be inserted, namely:-
“(f) review of marketing strategy in case of failure of sale of corporate debtor as a going concern;
(g) continuation or institution of any suits or legal proceedings by or against the corporate debtor;
(h) extension of payment of balance sale consideration as provided in clause (12) of Para 1 of Schedule I, beyond ninety days, to be disclosed in the auction notice.”
(ii) in sub-regulation (6), after the proviso, the following additional provisos, shall be inserted, namely:-
“Provided further that the liquidator shall convene subsequent meetings within thirty days of the previous meeting, unless the consultation committee has extended the period between such meetings:
Provided further that there shall be at least one meeting in each quarter.”
(iii) after sub-regulation (6), the following sub-regulations shall be inserted, namely:-
“(6A) In all cases where the liquidator proposes to continue or initiate any legal proceeding, he shall, after presenting the economic rationale for the proposal, seek the advice of the consultation committee.
(6B) In every meeting, the liquidator shall present to the consultation committee:
(i) the actual liquidation cost along with reasons for exceeding the estimated cost, if any;
(ii) the consolidated status of all the legal proceedings; and
(iii) the progress made in the process.”
(iv) in sub-regulation (9), the following explanation shall be inserted, namely:-
“Explanation: For the purpose of this sub-regulation, the term „voting‟ shall mean voting cast by the representatives of the consultation committee.”
5. In the principal regulations, in regulation 32A,
(i) in sub-regulation (4), the following explanation shall be inserted, namely:-
“Explanation: For the purpose of this sub-regulation, it is hereby clarified that the sale of the corporate debtor under clause (e) of regulation 32 cannot be offered as the only option for bidders after the first auction.”
(ii) after sub-regulation (4), the following sub-regulation shall be inserted, namely:-
“(5) Where the liquidator is of the opinion that it is viable to run the corporate debtor as a going concern, he shall consult the consultation committee and only on its advice he shall run the affairs of the corporate debtor as a going concern to the extent approved.”
6. In the principal regulations, in regulation 33, in sub-regulation (2),
(i) for the words “private sale in the manner specified in Schedule I when”, the words, “private sale only after prior consultation with the consultation committee under regulation 3 1A, in the manner specified in Schedule I when”, shall be substituted.
(ii) in clause (b), after the word and mark “immediately;”, the word “or”, shall be inserted.
(iii) clause (c) shall be omitted.
7. In the principal regulations, in regulation 35,
(i) in sub-regulation (2), for the words, “where the liquidator is of the opinion”, the words, “where the liquidator after consultation with the consultation committee under regulation 31A, is of the opinion”, shall be substituted.
(ii) after sub-regulation (4), the following sub-regulations shall be inserted, namely:-
“(5) Where valuation is undertaken as per sub-regulation (2), the liquidator shall facilitate a meeting wherein registered valuers shall explain the methodology being adopted to arrive at valuation to the consultation committee before finalisation of valuation reports.
(6) The liquidator shall share the valuation reports with the members of the consultation committee after obtaining an undertaking that they shall maintain the confidentiality of such reports and shall not use these reports to cause an undue gain or undue loss to itself or any other person.
(7) In case there is deviation of twenty five percent in the valuation of an asset class under sub-regulation (2) from valuation under regulation 35 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, the liquidator shall facilitate a meeting wherein the registered valuers shall explain the reasons for the difference to the consultation committee.”
8. In the principal regulations, in regulation 46,
(i) for sub-regulation (7), the following sub-regulations shall be substituted, namely:-
“(7) Prior to dissolution of the corporate person, a stakeholder, who claims to be entitled to any amount deposited into the Corporate Liquidation Account, may apply to the liquidator in Form-I for withdrawal of the amount.
(7A) On receipt of request under sub-regulation (7), the liquidator after verification of the claim, shall request the Board for release of amount to him for onward distribution.
(7B) The Board on receipt of request under sub-regulation (7A) may release the amount to the liquidator.
(7C) The liquidator shall, after making the distribution to the stakeholder, shall intimate the Adjudicating Authority of such distribution.
(7D) After dissolution of the corporate person, a stakeholder, who claims to be entitled to any amount deposited in the Corporate Liquidation Account, may apply to the Board in Form-I for an order for withdrawal of the amount.
(7E) If any person other than the stakeholder claims to be entitled to any amount deposited to the Corporate Liquidation Account, he shall submit evidence to satisfy the liquidator or the Board, as the case may be, that he is so entitled.”
(ii) in sub-regulation (8), for the expression “sub-regulation (7)”, the expression “sub-regulation (7D)”, shall be substituted.
9. In the principal regulations, after regulation 46, the following regulation shall be inserted, namely: –
“46A. Exclusion of certain assets from the liquidation estate.
For the purposes of clause (e) of sub-section (4) of section 36, wherever the corporate debtor has given possession to an allottee in a real estate project, such asset shall not form a part of the liquidation estate of the corporate debtor.”
10. In the principal regulations, in Schedule I, in para 1,
(i) in clause 3, after the proviso, the following proviso shall be inserted, namely:-
“Provided further that the liquidator shall mention in the auction notice, the period extended under clause (h) of sub-regulation (1) of regulation 31A.”
(ii) for clause (4), clause (4A) and clause (4B), the following clause shall be substituted, namely:-
“(4) The reserve price shall be the value of the asset arrived at in accordance with regulation 35 and where an auction fails, the reserve price in subsequent auctions may be further reduced by not more than ten percent at a time:
Provided that in cases where the reserve price of the failed auction of the asset was fixed as per the valuation under sub-regulation (1) of regulation 35, the liquidator may, on the advice of the consultation committee, reduce the reserve price up to twenty-five percent, once during the process.”
(iii) for clause (12), the following clause shall be substituted, namely:-
“(12) On the close of the auction, the highest bidder shall be invited to provide balance sale consideration within ninety days or such period as mentioned in the auction notice under clause 3, of the date of such demand:
Provided that payments made after thirty days shall attract interest at the rate of twelve per cent.:
Provided further that the sale shall be cancelled if the payment is not received within the period provided under this clause.”
11. In the principal regulations, in Schedule I, in para 2, after clause (3), the following clause shall be inserted, namely:-
“(3A) The private sale shall be confirmed to the buyer after consultation with the consultation committee under regulation 33.”
12. In the principal regulations, in Schedule II, for Form A, the following Form shall be substituted, namely:-
“FORM A
PROFORMA FOR REPORTING CONSULTATIONS WITH STAKEHOLDERS
(Under Regulation 8 and Regulation 31A of the Insolvency and Bankruptcy Board of India (Liquidation
Process) Regulations, 2016)
| Sl.No. | Basic details of CD and meeting | ||
| (a) | Name and Registration no. of Liquidator | ||
| (b) | Name of corporate debtor | ||
| (c) | Date of the meeting | ||
| (d) | Date of last meeting | ||
| (e) | Number of days since last meeting | ||
| (f) | Details of agenda of last meeting which were not approved by the SCC | ||
| – | Details of agenda items | Para of the minutes of the meeting where the same was discussed | Remarks |
| (a) | Remuneration of professionals appointed under regulation 7, including process advisors, IPE, etc. | ||
| (b) | Sale under regulation 32, including manner of sale, pre-bid qualifications, reserve price, marketing strategy and auction process | ||
| (c) | Fees of the liquidator | ||
| (d) | Valuation under sub-regulation (2) of regulation 35 | ||
| (e) | Status of Litigations and cost benefit analysis of pursuing these litigations | ||
| (f) | Preliminary report | ||
| (g) | Manner in which proceedings in respect of preferential transactions, undervalued transaction, extortionate credit transaction or fraudulent or wrongful trading, if any, shall be pursued after closure of liquidation proceedings and the manner in which the proceeds, if any, from these proceedings shall be distributed | ||
| (h) | Liquidation cost | ||
| (i) | Extension of time period for payment of balance sale consideration beyond ninety days | ||
| (j) | Running the business of the corporate debtor in the event the same is economically unviable | ||
| (k) | Early dissolution of the corporate debtor | ||
| (l) | Any other agenda item |
13. In the principal regulations, in Schedule II, in Form H,
(i) in para 4, for clause (b), the following clause shall be substituted, namely:-
“(b) Amount realised during the liquidation process:
| Sl. No. | Realisations | Amount (Rs.) |
| 1. | Opening balance as on liquidation commencement date (A) | |
| Realisations (B) | ||
| 2. | Auctions of assets | |
| 3. | Private sales of assets | |
| 4. | Assignment of not readily realisable assets | |
| 5. | Distribution of unsold asset | |
| 6. | Others (specify) | |
| Total (A+B) | ||
(ii) after para 4, the following paras shall be inserted, namely:-
“4A. Details of realisation of security interest by secured creditor under section 52:
| Sl. No. | Particulars | Details |
| 1. | Number of secured creditors who did not relinquish security interest | |
| 2. | Liquidation value of such security interest (Rs.) | |
| 3. | Amount of admitted claim of secured creditors (Rs.) | |
| 4. | Total realisation from such security interest (Rs.) | |
| 5. | Total Contribution made as per regulation 21A(2) (Rs.) (i+ii+iii) | |
| i. Contribution made by secured creditors toward workmen’s dues (Rs.) | ||
| ii. Contribution made by secured creditors toward unpaid CIRP and Liquidation Cost (Rs.) | ||
| iii. the excess of the realised value of the asset (Rs.) | ||
| 6. | Realised value received by secured creditor (Rs.) | |
| 7. | Date of realisation by secured creditor |
4B. Details of assignment of not readily realisable assets:
| Sl. No. | Particulars | Details |
| 1. | Details of the assets | |
| 2. | Liquidation value of the assets (Rs.) | |
| 3. | Amount realised (Rs.) | |
| 4. | Name of the bidder | |
| 5. | Sharing of proceeds between bidder and creditors/ corporate debtor, if any | |
| 6. | Schedule of realisation by bidder |
RAVI MITAL, Chairperson
[ADVT.-III/4/Exty./749/2023-24]
Note : The Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 were published vide notification No. IBBI/2016-17/GN/REG005 dated 15th December, 2016 in the Gazette of India, Extraordinary, Part III, Section 4, vide No. 460 on 15th December, 2016 and were last amended by Insolvency and Bankruptcy Board of India (Liquidation Process) (Second Amendment) Regulations, 2022 vide notification No. IBBI/2022-23/GN/REG094 dated the 16th September, 2022 in the Gazette of India, Extraordinary, Part III, Section 4, vide No. 456 on 16th September, 2022.
Insolvency and Bankruptcy Board of India
No. IBBI/PR/2024/07
13th February, 2024
Press Release
Insolvency and Bankruptcy Board of India amends the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016
The Insolvency and Bankruptcy Board of India notified the Insolvency and Bankruptcy Board of India (Liquidation Process) (Amendment) Regulations, 2024 (‘Amendment Regulations’) on 12th February 2024.
2. To strengthen the regulatory framework of the liquidation process, certain key amendments have been made to the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. These changes are aimed at facilitating a smoother process for liquidation, ensuring accountability, and bolstering the confidence of stakeholders in the liquidation process. Key amendments include:
a. The liquidator may reduce the reserve price by up to 25% for assets with existing valuation of the Corporate Insolvency Resolution Process (CIRP) on one occasion with the approval of the Stakeholders’ Consultation Committee (SCC) at any time during the process. For assets where fresh valuation is conducted during liquidation, the reserve price can be reduced by up to 10% in subsequent auctions with SCC’s approval.
b. The liquidator may sell the assets of the corporate debtor (CD) by means of private sale only upon prior consultation with SCC, and the successful buyer shall be confirmed only after such consultation. Further, the option for the private sale of an asset, i.e., ‘the asset is sold at a price higher than the reserve price of a failed auction’ by the liquidator, has been removed.
c. Liquidators are mandated to convene SCC meetings with a maximum interval of 30 days, to ensure timely decisions and oversight. However, the SCC may reduce the frequency of meetings if deemed necessary, provided that at least a minimum of one meeting is held per quarter. Decisions during these meetings are to be taken based on present and voting members.
d. At every SCC meeting, liquidators are required to present a comprehensive report which inter alia includes progress made in the liquidation process, the consolidated status of all legal proceedings, and cumulative costs incurred during the process. Any cost overruns beyond initial estimates must be justified with a rationalization plan.
e. For fresh asset valuations, liquidators are required to facilitate meetings where registered valuers explain their methodology and reasons for significant deviations, if any, from the CIRP valuations. Further, the liquidator shall share the valuation reports with the SCC members after obtaining a confidentiality undertaking.
f. Before initiating or continuing any legal proceedings, liquidators must consult the SCC, presenting the economic rationale.
g. The liquidator, upon considering the viability, must consult the SCC before deciding to run the affairs of the corporate debtor as a going concern. Further, the sale of the CD as a going concern cannot be put on an auction exclusively after the first auction, and in case of a failed auction, the liquidator shall review the marketing strategy in consultation with the SCC.
h. Prior to applying for early dissolution, the liquidator must seek the SCC’s views and recommendations, providing a detailed report in the application to the Adjudicating Authority (AA).
i. To capture additional details regarding the realisation and distribution made during the process, the Compliance Certificate under Form H has been modified.
j. During the period after submission of the final report but before a corporate debtor is dissolved, stakeholders claiming entitlement to any amounts deposited in the Corporate Liquidation Account can apply to the liquidator for withdrawal. Upon receiving such a request, the liquidator shall verify the claim and request the Board to release the funds to him/her for onward distribution.
k. The liquidator shall file the proposal of compromise or arrangement only in cases where the Committee of Creditors made such a recommendation during the CIRP and such proposal shall not be filed after the expiry of thirty days from the liquidation commencement date.
l. The liquidator may extend the payment period of balance sale consideration beyond ninety
days, after consultation with the SCC.
m. Wherever the corporate debtor has given possession to an allottee in a real estate project, such asset shall not form a part of the liquidation estate of the corporate debtor.
n. The Form A for reporting consultation with the stakeholders has been modified to capture the meetings details such as the interval between two meetings, dissent by the SCC etc.
3. The Amendment Regulations are effective from 12th February, 2024. These are available at www.mca.gov.in and www.ibbi.gov.in.
(Article is updated with press release on 13th February 2024.)
