The Insolvency and Bankruptcy Board of India (IBBI), by way of its recent discussion paper on Amendments to IBBI (Liquidation Process) Regulations, 2016 and IBBI (Voluntary Liquidation Process) Regulations, 2017 dated November 19, 2024, has proposes several amendments to the two Regulations. The discussion paper addresses various issues and proposes changes to enhance the efficiency, transparency, and management of the liquidation and voluntary liquidation processes.

 

By way of the discussion paper, the IBBI has solicited public comments on various proposals made by it in relation to amendments to IBBI (Liquidation Process) Regulations, 2016 (Liquidation Regulations) and IBBI (Voluntary Liquidation Process) Regulations, 2017 (Voluntary Liquidation Process Regulations).

 

While Part-A proposes changes in the Liquidation Regulations in relation to (a) Review of the auction Process (b) ensuring transparency in compromise or arrangement schemes by mandating liquidator for applying closure of the liquidation process to the Adjudicating Authority and (c) improving the management of unclaimed proceeds in the Corporate Liquidation account by (i) dispensing with the requirements of the Public Account of India and (ii) utilizing interest income for stakeholder awareness campaigns, Part-B proposes changes in the voluntary liquidation regulations in relation to (a) uncalled capital or unpaid capital contribution and (b) improving the management of unclaimed proceeds in the Corporate Voluntary Liquidation account by (i) dispensing with the requirements of the Public Account of India, (ii) utilizing interest income for stakeholder awareness campaigns, and (iii) facilitating the claim withdrawal process

 

The key proposals made by the IBBI include the following:

 

Part A: Liquidation Process Regulations, 2016

 

1. Auction Framework

Recognizing that the current auction framework has several issues such as limited participation time, time-consuming verification, risk of collusion between liquidator and bidders and discretionary rejection by the liquidator, the IBBI has proposed that prospective bidders be allowed to participate based on an affidavit/declaration of their eligibility under section 29A of the IBC, 2016. Moreover, the Earnest Money Deposit be forfeited if a bidder is found ineligible, along with loss of right to participate in the auction, both acting as a deterrent against wrong affidavits. It also mandates the liquidator to consult with the Stakeholders Consultation Committee before rejecting the highest bid above the reserve price and also requires the liquidator to conduct due diligence of the eligibility of the highest bidder within three (3) days of such declaration.

 

2. Compromise or Arrangement

The IBBI took note that currently, there is no specific provision for closing the liquidation process in cases of an approved scheme of compromise or arrangement, even though it is similar to a going concern sale, leading to liquidators not submitting the closure application to the Adjudicating Authority. The paper thus proposes for the liquidator to file the final report along with Form H whenever an application for approval of a scheme under section 230 of the Companies Act, 2013, is submitted.

 

3. Corporate Liquidation Account

The liquidation process often gets delayed due to the inability to distribute proceeds to all stakeholders. Regulation 46 mandates the IBBI to establish a Corporate Liquidation Account within the Public Accounts of India and until then, manage the funds (distribution proceeds of unavailable stakeholders) through separate bank accounts in a scheduled bank as an interim measure. The IBBI raises a concern that once the Corporate Liquidation Account in the Public Accounts of India is operationalized, an additional hierarchical layer of the PAO for release of funds could result in delays in processing the payment to the claimants.

The paper proposes to allow the IBBI to operate and manage the Corporate Liquidation Account permanently, dispensing with the requirement of having it within the Public Accounts of India. This would streamline the process and improve overall fund management. It also proposes to use interest income to create awareness among stakeholders about unclaimed proceeds and the process for claiming them.

 

Part B: Voluntary Liquidation Process Regulations

 

1. Uncalled Capital or Unpaid Capital Contribution

The current Regulation 33 mandates the realization of uncalled capital or unpaid capital contribution before making any distribution to contributories, which can delay the voluntary liquidation process. It is proposed that the regulation be amended to allow the voluntary liquidation process to be completed even if there is some uncalled capital. This would protect the rights of the secured creditors, along with the pre-existing consent requirement under Section 59 of the IBC (creditors representing two-thirds in value of the debt of the company shall approve any resolution passed for initiation of Voluntary Liquidation Process).

 

2. Corporate Voluntary Liquidation Account

The voluntary liquidation process often gets delayed due to the inability to distribute proceeds to all stakeholders. Regulation 39 mandates the IBBI to establish a Corporate Voluntary Liquidation Account within the Public Accounts of India and until then, manage the funds (distribution proceeds of unavailable stakeholders) through separate bank accounts in a scheduled bank as an interim measure. The IBBI raises a concern that once the Corporate Liquidation Account in the Public Accounts of India is operationalized, an additional hierarchical layer of the PAO for release of funds could result in delays in processing the payment to the claimants.

 

It is proposed to allow the IBBI to operate and manage the Corporate Voluntary Liquidation Account permanently, dispensing with the requirement of having it within the Public Accounts of India. This would streamline the process and improve overall fund management. It is also recommended to use interest income to create awareness among stakeholders about unclaimed proceeds and the process for claiming them.

 

The proposed amendments are expected to benefit all stakeholders and contribute to a more robust insolvency and bankruptcy framework in India.

Authors & Contributors

Partner:

Abhishek Swaroop

 

 

Associates:

Bhawana Sharma

Shreya Chandhok

Kirti Talreja

Rounak Doshi

Bharath Krishna