In order to strengthen the liquidation process, IBBI has recently modified its principal liquidation regulations, IBBI (Liquidation Process) Regulations, 2016 through amendment vide IBBI (Liquidation Process) Amendment Regulations, dated 12th February, 2024. The crux of the amendment is the empowering the Stakeholders Consultative Committee with oversight function over the functioning of liquidator. Let us see the actual provisions as below:
1. Compromise or arrangement (Regulation 2B)
In case of compromise and arrangement as envisaged under Companies Act, the liquidator shall first seek the consent of COC under Regulation 39BA of CIRP Regulations within 30 days oof liquidation commencement date.
2. Early Dissolution (Regulation 14)
The liquidator shall seek consent of Stakeholders Consultative Committee (SCC) before filing the application for early dissolution with the Adjudicating Authority. The consent along with detailed report will become part of application.
3. Stakeholders’ Consultation Committee (SCC) (Regulation 31A)
SCC is empowered to advise the liquidator, among other things, on following newly inserted sub-clauses:
(f) Review marketing strategy if sale of corporate debtor fails as going concern.
(g) Continuation/initiation of suit/ legal proceedings involving corporate debtor.
(h) Disclose in auction notice extension of sale consideration payment period beyond 90 days.
4. Monthly SCC meeting (Regulation 31A (6))
Liquidator shall call first meeting of SCC within 7 days of liquidation commencement date and schedule subsequent meetings of stakeholder’s consultation committee every 30 days unless extended by consultation committee but at least one quarterly meeting will be held. Other newly inserted sub-clauses are:
- (6A) Liquidator shall seek consultation committee advice before legal proceedings, providing economic rationale.
- (6B) In each meeting, liquidator shall present:
(a) Actual liquidation costs and reasons for exceeding estimates.
(b) Consolidated status of all legal proceedings.
(c) Progress in the process.
5. Approval for operating Corporate Debtor as going concern (Regulation 32A)
As per amendment pertaining to sale of assets and related provisions, the liquidator will discuss with the consultation committee. They will decide together if it’s feasible to continue running the company. If approved by the committee, the liquidator will proceed accordingly.
6. Valuation: New sub regulations inserted 5,6 and 7 (Regulation 35)
(5) Registered Valuer shall explain the methodology of valuation to SCC before finalization of valuation reports.
(6) Liquidator shall share valuation reports with members of consultation committee after confidentiality undertaking to prevent misuse for undue gain or loss.
(7) In case, there is deviation of 25% in the valuation of an asset from the valuation under CIRP, the liquidator shall facilitate a meeting wherein the registered valuers shall explain the reasons for the difference to the consultation committee.
7. Corporate Liquidation Account (Regulation 46)
As per amendment, Sub-regulation (7) is replaced with new sub-regulations:
(7) Any stakeholder will apply in Form-I to liquidator for withdrawal from Corporate Liquidation Account.
(7A) Liquidator verifies claim and will request IBBI for release of amount for onward distribution.
(7B) IBBI may release amount to liquidator upon request.
(7C) Liquidator shall intimate Adjudicating Authority after distribution.
(7D) However, in case of request of withdrawal after dissolution of CD, the stakeholder shall directly apply Form-I to IBBI for withdrawal.
(7E) Other claimants must provide evidence to liquidator or Board for entitlement.
8. Allotted Assets out of liquidation estate: Regulation 46A inserted:
Assets given to real estate project allottees shall be excluded from liquidation estate under clause (e) of section 36(4).
9. Reserve Price and Bidding: In Schedule I, para 1, clause 3, the following proviso inserted:
(i) Liquidator must mention extended period in auction notice as per Regulation 31A(1)(h).
(ii) Reserve price based on Regulation 35 valuation; if auction fails, subsequent reserve prices may be reduced by up to 10%. Liquidator, with consultation committee advice, can reduce reserve price by up to 25% once during process if initial reserve price was based on Regulation 35 valuation.
(iii) Highest bidder shall make payment of balance consideration within specified period of 90 days or as mentioned in auction notice; However, in case of payment beyond 30 days, interest at 12% shall be paid. Sale will be canceled if payment not received within specified period.
(iv) Clause 3A: Private sale shall be confirmed only after consultation with SCC.
10. New Form: A new Form A for reporting consultation with stakeholders is prescribed.
Conclusion: The amendments to the IBBI (Liquidation Process) Regulations, 2016, represent a significant stride towards optimizing the liquidation process under the Insolvency and Bankruptcy Code (IBC). By empowering the Stakeholders Consultative Committee (SCC) with an oversight function and introducing new provisions that demand higher transparency and stakeholder engagement, the amendment ensures a more equitable and efficient liquidation procedure. These changes are expected to have a salutary effect on the liquidation process, promoting fairness and facilitating a smoother resolution of assets. For professionals and stakeholders navigating the complexities of liquidation under the IBC, understanding these amendments is crucial for ensuring compliance and leveraging the intended benefits of a more streamlined process.
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In case you have any concern and queries or need any support in compliance/ IBC/NCLT/liquidation, you may like to contact us.
Abhinarayan Mishra, FCA, FCS, IP, RV; KPAM & Associates, Chartered Accountants, Dwarka, New Delhi; +9910744992, ca.abhimishra@gmail.com
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