GAZETTE OF INDIA
EXTRAORDINARY
PART III, SECTION 4
PUBLISHED BY AUTHORITY
NEW DELHI, [•], [•], 2017
INSOLVENCY AND BANKRUPTCY BOARD OF INDIA
NOTIFICATION
New Delhi, [•], 2017
INSOLVENCY AND BANKRUPTCY BOARD OF INDIA (VOLUNTARY
LIQUIDATION) REGULATIONS, 2017
IBBI/2016-17/GN/REG00[•]. – In exercise of the powers conferred by sections 59, 196 and 208 read with section 240 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), the Board hereby makes the following Regulations, namely-
CHAPTER I
PRELIMINARY
1. Short title and commencement.
(1) These Regulations may be called the Insolvency and Bankruptcy Board of India (Voluntary Liquidation) Regulations, 2017.
(2) These Regulations shall come into force on the date of their publication in the Official
(3) These Regulations shall apply to the voluntary liquidation of corporate persons under Chapter V of Part II of the Insolvency and Bankruptcy Code, 2016.
2. Definitions.
(1) In these Regulations, unless the context otherwise requires-
(a) “Code” means the Insolvency and Bankruptcy Code, 2016;
(b) “contributory” means a member of the company, partner of the limited liability partnership, and any other person liable to contribute towards the assets of the corporate person in the event of its liquidation;
(c) “liquidation commencement date” means the date on which the proceedings for voluntary liquidation commence as per section 59(5) and Regulation 5;
(d) “member” when used in the context of companies, shall have the same meaning as assigned to it in section 2(5 5) of the Companies Act, 2013;
(e) “partner” shall have the same meaning as assigned to the term in section 2(q) of the Limited Liability Partnership Act, 2008;
(f) “Registrar” shall have the same meaning as assigned to the term in section 2(75) of the Companies Act, 2013, section 2(1)(s) of the Limited Liability Partnership Act, 2008 or the authority administering the Act under which the corporate person is incorporated, as applicable;
(g) “record of business operations” shall be the most recent
(i) the statements, records and reports to be prepared under section 134 of the Companies Act, 2013 if the corporate person is a company,
(ii) the books of accounts, other records and annual return submitted under sections 34 and 35, respectively of the Limited Liability Partnership Act, 2008 if the corporate person is a limited liability partnership, or
(iii) financial statements, if the corporate person is other than a company or a limited liability partnership;
(h) “section” means a section of the Code; and
(i) “stakeholders” shall mean the stakeholders entitled to a distribution of proceeds under section 53 of the Code.
(2) Unless the context otherwise requires, words and expressions used and not defined in these Regulations, but defined in the Code, shall have the meanings assigned to them in the Code.
CHAPTER II
COMMENCEMENT OF VOLUNTARY LIQUIDATION
3. Initiation of Voluntary Liquidation
(1) Where a corporate person, other than a company, intends to liquidate itself voluntarily, a majority of the-
(a) designated partners, if the corporate person is a limited liability partnership, or
(b) persons responsible for exercising its corporate powers, if the corporate person is not a company or a limited liability partnership
shall make a declaration, verified by an affidavit stating that—
(i) they have made a full inquiry into the affairs of the corporate person and they have formed an opinion that either the corporate person has no debt or that it will be able to pay its debts in full from the proceeds of assets to be sold in the voluntary liquidation; and
(ii) the corporate person is not being liquidated to defraud any person.
(2) A declaration under sub-regulation (1) shall be accompanied by-
(a) audited financial statements and record of business operations of the corporate person for the previous two years or for the period since its incorporation, whichever is later;
(b) a report of the valuation of the assets of the corporate person, if any, prepared by a registered valuer;
(3) Within four weeks of a declaration under sub-regulation (1)-
(i) a resolution passed by the special majority of the partners or contributories, as the case may be, of the corporate person requiring the corporate person to be liquidated voluntarily and appointing an insolvency professional to act as the liquidator; or
(ii) a resolution passed by the majority of the partners or contributories, as the case may be, of the corporate person requiring the corporate person to be liquidated voluntarily as a result of expiry of the period of its duration, if any, fixed by its constitutional documents or on the occurrence of any event in respect of which the constitutional documents provide that the corporate person shall be dissolved, as the case may be and appointing an insolvency professional to act as the liquidator.
(4) A resolution passed under sub-regulation (3) or under section 59(3)(c), as the case may be, shall contain the terms and conditions of the appointment of the insolvency professional, including the remuneration due to him.
4. Ratification by creditors
(1) Where the corporate person owes any debt to any person, creditors representing two-thirds in value of the debt of the corporate person shall approve the resolution passed under Regulation 3 within seven days of such resolution.
(2) The Board of Directors or the designated partners shall cause the documents referred to in Regulation 3(1) and (2) to be presented to a creditor before his approval is
5. Commencement of voluntary liquidation
A voluntary liquidation for a corporate person other than a company shall be deemed to have commenced from the date of passing of the resolution under Regulation 3(3).
6. Effect of voluntary liquidation on status of corporate person.
The corporate person shall from the voluntary liquidation commencement date cease to carry on its business except as far as required for the beneficial winding up of its business:
Provided that the corporate state and corporate powers of the corporate person shall continue until it is dissolved.
CHAPTER III
APPOINTMENT AND REMUNERATION OF LIQUIDATOR
7. Eligibility for appointment as liquidator.
(1) An insolvency professional shall be eligible to be appointed as a liquidator if he, and every partner or director of the insolvency professional entity of which he is a partner or director is independent of the corporate person.
Explanation– A person shall be considered independent of the corporate person, if he-
(a) is eligible to be appointed as an independent director on the board of the corporate person under section 149 of the Companies Act, 2013 (18 of 2013), where the corporate person is a company;
(b) is not a related party of the corporate person; or
(c) has not been an employee or proprietor or a partner:
(i) of a firm of auditors or company secretaries or cost auditors of the corporate person; or
(ii) of a legal or a consulting firm, that has or had any transaction with the corporate person contributing ten per cent or more of the gross turnover of such firm,
in the last three financial years.
(2) A liquidator shall disclose the existence of any pecuniary or personal relationship with the concerned corporate person or any of its stakeholders as soon as he becomes aware of it, to the Board and the Registrar.
(3) An insolvency professional shall not continue as a liquidator if the insolvency professional entity of which he is a director or partner, or any other partner or director of such insolvency professional entity represents any other stakeholder in the same liquidation.
8. Liquidator’s remuneration.
The remuneration due to the liquidator shall form part of the liquidation cost.
CHAPTER IV
POWERS AND FUNCTIONS OF LIQUIDATOR
9. Reporting.
(1) The liquidator shall prepare and submit:
(a) status report;
(b) the final report prior to dissolution in the manner specified under these Regulations.
(2) The liquidator shall preserve a physical as well as an electronic copy of the reports referred to in sub-regulation (1) for eight years after the dissolution of the corporate person.
10. Registers and books of account.
(1) Where the books of account of the corporate person are incomplete on the liquidation commencement date, the liquidator shall have them completed and brought up-to-date, with all convenient speed.
(2) The liquidator shall maintain the following registers and books, as may be applicable, in relation to the voluntary liquidation of the corporate person, and shall preserve them for a period of eight years after the dissolution of the corporate person-
(a) Cash Book;
(b) Ledger;
(c) Bank Ledger;
(d) Register of Fixed Assets and Inventories;
(e) Securities and Investment Register;
(f) Register of Book Debts and Outstanding Debts;
(g) Tenants Ledger;
(h) Suits Register;
(i) Decree Register;
(j) Register of Claims and Dividends;
(k) Contributories Ledger;
(l) Distributions Register;
(m) Fee Register;
(n) Suspense Register;
(o) Documents Register;
(p) Books Register;
(q) Register of unclaimed dividends and undistributed properties deposited in accordance with Regulation 39; and
(r) such other books or registers as may be necessary to account for transactions entered into by him in relation to the corporate person.
(3) The registers and books under sub-regulation (2) may be maintained in the forms indicated in Schedule II, with such modifications as the liquidator may deem fit in the facts and circumstances of the voluntary liquidation.
(4) The liquidator shall keep receipts for all payments made or expenses incurred by him.
11. Appointment of professionals.
(1) A liquidator may appoint professionals to assist him in the discharge of his duties, obligations and functions for a reasonable remuneration and such remuneration shall form part of the liquidation cost.
(2) The liquidator shall not appoint a professional under sub-regulation (1) who is his relative, is a related party of the corporate person or has served as an auditor to the corporate person in the five years preceding the voluntary liquidation commencement
(3) A professional appointed or proposed to be appointed under sub-regulation (1) shall disclose the existence of any pecuniary or personal relationship with any of the stakeholders, or the concerned corporate person as soon as he becomes aware of it, to the liquidator.
12. Consultation with stakeholders.
The stakeholders of the corporate person shall extend all assistance and cooperation to the liquidator to complete the liquidation of the corporate person.
13. Extortionate credit transactions.
A transaction shall be considered an extortionate credit transaction under section 5 0(2) where the terms-
(a) require the corporate person to make exorbitant payments in respect of the credit provided; or
(b) are unconscionable under the principles of law relating to contracts.
Explanation— For the purpose of this Regulation, it is clarified that any debt extended by any person providing financial services which is in compliance with any law for the time being in force in relation to such debt shall in no event be considered as an extortionate credit transaction.
14. Public announcement by the liquidator.
(1) The liquidator shall make a public announcement in Form A of Schedule I within five days from his appointment.
(2) The public announcement shall-
(a) call upon stakeholders to submit their claims as on the liquidation commencement date; and
(b) provide the last date for submission of claim, which shall be thirty days from the liquidation commencement date.
(3) The announcement shall be published-
(a) in the Official Gazette;
(b) in one English and one regional language newspaper with wide circulation at the location of the registered office and principal office, if any, of the corporate person and any other location where in the opinion of the liquidator, the corporate person conducts material business operations;
(c) on the website, if any, of the corporate person; and
(d) on the website, if any, designated by the Board for this purpose.
CHAPTER V
CLAIMS
15. Proof of claim.
A person, who claims to be a stakeholder, shall prove his claim for debt or dues to him, including interest, if any, as on the liquidation commencement date.
16. Claims by operational creditors.
(1) A person claiming to be an operational creditor of the corporate person, other than a workman or employee, shall submit proof of claim to the liquidator in person, by post or by electronic means in Form B of Schedule I.
(2) The existence of debt due to an operational creditor under this Regulation may be proved on the basis of-
(a) the records available with an information utility, if any; or
(b) other relevant documents which adequately establish the debt, including any or all of the following –
(i) a contract for the supply of goods and services with corporate person;
(ii) an invoice demanding payment for the goods and services supplied to the corporate person;
(iii) an order of a court or tribunal that has adjudicated upon the non-payment of a debt, if any; and
(iv) financial accounts.
17. Claims by financial creditors.
(1) A person claiming to be a financial creditor of the corporate person shall submit proof of claim to the liquidator in electronic means in Form C of Schedule I.
(2) The existence of debt due to the financial creditor may be proved on the basis of-
(a) the records available in an information utility, if any; or
(b) other relevant documents which adequately establish the debt, including any or all of the following –
(i) a financial contract supported by financial statements as evidence of the debt;
(ii) a record evidencing that the amounts committed by the financial creditor to the corporate person under a facility has been drawn by the corporate person;
(iii) financial statements showing that the debt has not been repaid; and
(iv) an order of a court or tribunal that has adjudicated upon the non-payment of a debt, if any.
18. Claims by workmen and employees.
(1) A person claiming to be a workman or an employee of the corporate person shall submit proof of claim to the liquidator in person, by post or by electronic means in Form D of Schedule I.
(2) Where there are dues to numerous workmen or employees of the corporate person, an authorized representative may submit one proof of claim for all such dues on their behalf in Form E of Schedule I.
(3) The existence of dues to workmen or employees may be proved by them, individually
or collectively, on the basis of-
(a) records available in an information utility, if any; or
(b) other relevant documents which adequately establish the dues, including any or all of the following –
(i) a proof of employment such as contract of employment for the period for which such workman or employee is claiming dues;
(ii) evidence of notice demanding payment of unpaid amount and any documentary or other proof that payment has not been made; and
(iii) an order of a court or tribunal that has adjudicated upon the non-payment of dues, if any.
(4) The liquidator may admit the claims of a workman or an employee on the basis of the books of account of the corporate person if such workman or employee has not made a claim.
19. Claims by other stakeholders.
(1) A person, claiming to be a stakeholder other than those under Regulations 16, 17, 18, shall submit proof of claim to the liquidator in person, by post or by electronic means in Form F of Schedule I.
(2) The existence of the claim of the stakeholder may be proved on the basis of –
(a) the records available in an information utility, if any, or
(b) other relevant documents which adequately establish the claim, including any or all of the following-
(i) documentary evidence of notice demanding payment of unpaid amount or bank statements of the claimant showing that the claim has not been paid and an affidavit that the documentary evidence and bank statements are true, valid and genuine;
(ii) documentary or electronic evidence of his shareholding; and
(iii) an order of a court, tribunal or other authority that has adjudicated upon the non-payment of a claim, if any.
20. Proving security interest.
The existence of a security interest may be proved by a secured creditor on the basis of-
(a) the records available in an information utility, if any;
(b) certificate of registration of charge issued by the Registrar of Companies;
(c) proof of registration of charge with the Central Registry of Securitisation Asset Reconstruction and Security Interest of India; or
(d) other relevant documents which adequately establish the security interest.
21. Production of bills of exchange and promissory notes.
Where a person seeks to prove a debt in respect of a bill of exchange, promissory note or other negotiable instrument or security of a like nature for which the corporate person is liable, such bill of exchange, note, instrument or security, as the case may be, shall be produced before the liquidator before the claim is admitted.
22. Substantiation of claims.
The liquidator may call for such other evidence or clarification as he deems fit from a claimant for substantiating the whole or part of its claim.
23. Cost of proof.
(1) A claimant shall bear the cost of proving its claim.
(2) Costs incurred by the liquidator for verification and determination of a claim shall form part of liquidation cost:
Provided that if a claim or part of the claim is found to be false, the liquidator shall endeavor to recover the costs incurred for verification and determination of claim from such claimant, and shall provide the details of the claimant to the Board.
24. Determination of quantum of claim.
Where the amount claimed by a claimant is not precise due to any contingency or any other reason, the liquidator shall make the best estimate of the amount of the claim based on the information available with him.
25. Debt in foreign currency.
The claims denominated in foreign currency shall be valued in Indian currency at the official exchange rate as on the voluntary liquidation commencement date.
Explanation- “The official exchange rate” is the reference rate published by the Reserve Bank of India or derived from such reference rates.
26. Periodical payments.
In the case of rent, interest and such other payments of a periodical nature, a person may claim only for any amounts due and unpaid up to the voluntary liquidation commencement date.
27. Debt payable at future time.
(1) A person may prove for a claim whose payment was not yet due on the voluntary liquidation commencement date and is entitled to distribution in the same manner as any other stakeholder.
(2) Subject to any contract to the contrary, where a stakeholder has proved for a claim under sub-regulation (1), and the debt has not fallen due before distribution, he is entitled to distribution of the admitted claim reduced as follows-
X/ (1+r)n
where–
(a) “X” is the value of the admitted claim;
(b) “r” is the closing yield rate (%) of government securities of the maturity of “n” on the date of distribution as published by the Reserve Bank of India; and
(c) “n” is the period beginning with the date of distribution and ending with the date on which the payment of the debt would otherwise be due, expressed in years and months in a decimalized form.
28. Mutual credits and set-off.
Where there are mutual dealings between the corporate person and another party, the sums due from one party shall be set off against the sums due from the other to arrive at the net amount payable to the corporate person or to the other party.
Illustration: X owes Rs. 100 to the corporate person. The corporate person owes Rs. 70 to X. After set off, Rs. 30 is payable by X to the corporate person.
29. Verification of claims
(1) The liquidator shall verify the claims submitted within thirty days from the last date for receipt of claims and may either admit or reject the claim, in whole or in part, as the case may be, as per section 40 of the Code.
(2) A creditor may appeal to the Adjudicating Authority against the decision of the liquidator as per section 42 of the Code.
30. List of stakeholders.
(1) The liquidator shall prepare a list of stakeholders on the basis of proofs of claims submitted and accepted under these Regulations, with-
(a) the amounts of claim admitted, if applicable,
(b) the extent to which the debts or dues are secured or unsecured, if applicable,
(c) the details of the stakeholders, and
(d) the proofs admitted or rejected in part, and the proofs wholly rejected.
(2) The liquidator shall prepare the list of stakeholders within forty-five days from the last date for receipt of claims.
(3) The list of stakeholders, as modified from time to time, shall be-
(a) available for inspection by the persons who submitted proofs of claim;
(b) available for inspection by members, partners, directors and guarantors of the corporate person;
(c) displayed on the website, if any, of the corporate person.
CHAPTER VI
REALISATION OF ASSETS
31. Manner of sale.
The liquidator may value and sell the property of the corporate person in any manner and through any mode that is approved by the corporate person.
32. Recovery of monies due.
The liquidator shall endeavor to recover and realize all assets of and dues to the corporate person in a time-bound manner for maximization of value for the stakeholders.
33. Liquidator to realize uncalled capital or unpaid capital contribution.
(1) The liquidator shall realize any amount due from any contributory to the corporate
(2) Notwithstanding any charge or encumbrance on the uncalled capital of the corporate person, the liquidator shall be entitled to call and realize the uncalled capital of the corporate person and to collect the arrears if any due on calls made prior to the liquidation commencement date, by providing a notice to the contributory to make the payments within fifteen days from the receipt of the notice, but shall hold all moneys so realized subject to the rights, if any, of the holder of any such charge or
(3) No distribution shall be made to a contributory, unless he makes his contribution to the uncalled or unpaid capital as required in the constitutional documents of the corporate person.
CHAPTER VII
PROCEEDS OF LIQUIDATION AND DISTRIBUTION OF PROCEEDS
34. All money to be paid in to bank account.
(1) The liquidator shall open a bank account in the name of the corporate person followed by the words ‘in voluntary liquidation’, in a scheduled bank, for the receipt of all moneys due to the corporate person.
(2) The liquidator shall pay to the credit of the bank account opened under sub-regulation (1) all moneys, including cheques and demand drafts received by him as the liquidator of the corporate person, and the realizations of each day shall be deposited into the bank account without any deduction not later than the next working day.
(3) All payments out of the account by the liquidator above five thousand rupees shall be made by cheques drawn or online banking transactions against the bank account.
35. Distribution.
(1) The liquidator shall distribute the proceeds from realization within six months from the receipt of the amount to the stakeholders.
(2) The liquidation costs shall be deducted before such distribution is made.
(3) The liquidator may, with the approval of the corporate person, distribute amongst the stakeholders, an asset that cannot be readily or advantageously sold due to its peculiar nature or other special circumstances.
36. Return of money.
A stakeholder shall forthwith return any monies received by him in distribution, which he was not entitled to at the time of distribution, or subsequently became not entitled to.
37. Completion of liquidation.
(1) The liquidator shall endeavor to wind up the affairs of the corporate person within one year from the voluntary liquidation commencement date.
(2) In the event of the voluntary liquidation continuing for more than one year, the liquidator shall
(a) call a meeting of the contributories of the corporate person within fifteen days from the end of the year in which he is appointed, and at the end of each succeeding year; and
(b) shall present a Status Report indicating progress in liquidation, including-
(i) settlement of list of stakeholders,
(ii) details of any property that remain to be sold and realized,
(iii) distribution made to the stakeholders, and
(iv) distribution of unsold property made to the stakeholders;
(v) developments in any material litigation, by or against the corporate person; and
(v) filing of, and developments in applications for avoidance of transactions in accordance with Chapter III of Part II of the Code.
(3) The Status Report shall enclose an audited account of the voluntary liquidation showing the receipts and payments pertaining to liquidation since the liquidation commencement date.
38. Final report prior to dissolution.
(1) When the affairs of the corporate person are fully wound up, the liquidator shall prepare a Final Report consisting of –
(a) an audited account of the voluntary liquidation, showing the receipts and payments pertaining to liquidation since the liquidation commencement date; and
(b) a statement demonstrating that-
(i) the assets of the corporate person have been disposed of;
(ii) the debt of the corporate person has been discharged to the satisfaction of the creditors;
(iii) no litigation is pending against the corporate person.
(c) A sale statement in respect of all assets containing –
(i) the realized value;
(ii) cost of realization, if any;
(iii) the manner and mode of sale;
(iv) if the value realized is less than the value assigned by the registered valuer in the report of the valuation of assets prepared in accordance with section 59(3)(b)(ii) or Regulation 3(2)(b), as the case may be;
(v) the person to whom the sale is made; and
(vi) any other details of the sale.
Explanation: For the purpose of this Regulation, ‘assets’ include an asset, all assets, a set of assets or parcel of assets, as the case may be, which are being sold.
(2) The liquidator shall send the Final Report to –
(a) the contributories of the corporate person;
(b) the Registrar; and
(c) the Board, by registered post at their registered address and by electronic means.
(3) The liquidator shall submit the Final Report to the Adjudicating Authority along with the application under section 59(7).
39. Unclaimed proceeds of liquidation or undistributed assets.
(1) Before the order of dissolution is passed under section 59(8), the liquidator shall apply to the Adjudicating Authority for an order to pay into the Companies Liquidation Account in the Public Account of India any unclaimed proceeds of liquidation or undistributed assets or any other balance payable to the stakeholders in his hands on the date of the order of dissolution.
(2) Any liquidator who retains any money which should have been paid by him into the Companies Liquidation Account under this Regulation shall pay interest on the amount retained at the rate of twelve per cent per annum, and also pay such penalty as may be determined by the Board.
(3) The liquidator shall, when making any payment referred to in sub-regulation (1), furnish to the authority with which the corporate person is registered and the Board, a statement setting forth the nature of the sums included, the names and last known addresses of the stakeholders entitled to participate therein, the amount to which each is entitled to and the nature of their claim.
(4) The liquidator shall be entitled to a receipt from the Reserve Bank of India for any money paid to it under sub-regulation (2), and such receipt shall be an effectual discharge of the liquidator in respect thereof.
(5) A person claiming to be entitled to any money paid into the Companies Liquidation Account may apply to the Board for an order for payment of the money claimed; which may, if satisfied that such person is entitled to the whole or any part of the money claimed, make an order for the payment to that person of the sum due to him, after taking such security from him as it may think fit.
(6) Any money paid into the Companies Liquidation Account in pursuance of this Regulation, which remains unclaimed thereafter for a period of fifteen years, shall be transferred to the general revenue account of the Central Government.
40. Detection of Fraud or Insolvency
(1) Where the liquidator is of the opinion that the voluntary liquidation is being done to defraud a person, he shall make an application to the Adjudicatory Authority to suspend the process of voluntary liquidation and pass any such orders as it deems fit.
(2) Where the liquidator is of the opinion that the corporate person will not be able to pay its debts in full from the proceeds of assets to be sold in the voluntary liquidation, he shall make an application to the Adjudicating Authority to suspend the process of voluntary liquidation and pass any such orders as it deems fit.
