The Insolvency and Bankruptcy Board of India (IBBI) has amended the regulations governing the voluntary liquidation of troubled companies to make the exit process faster and more efficient so that idle assets are released quickly for more productive uses without erosion substantial in value.
The regulator has stipulated that the period for distributing liquidation proceeds will be reduced to just 30 days from the current six months. In cases where claims are received from creditors, the liquidator must complete the liquidation process and submit the final report to the board of directors and the Registrar of Companies within 270 days from the start date of the process. However, in cases where no claim is received from a creditor, this process must be concluded within 90 days.
In cases where no complaint is received from the creditor, the deadline for the preparation of the list of stakeholders by the liquidator will be reduced to 15 days from the proposed deadline for the receipt of complaints.
The amendments are based on a discussion paper launched by the regulator in February for stakeholder feedback.
The IBBI has also introduced a certificate of compliance/checklist for the voluntary liquidation process, modeled on that currently provided under the CIRP (Corporate Insolvency Resolution Process). It must be submitted with the final report to the contracting authority.
According to the working paper released in February, liquidators had submitted final reports to the NCLT in 546 cases as of December 31, 2021. However, no less than 263 cases (about 48%) were still pending dissolution.
The latest initiative aims to help the NCLT process disbandment requests quickly and ensure consistency across its benches. This would save judicial time and resources and therefore also reduce the burden on the NCLT.
Anoop Rawat, Partner (Insolvency and Bankruptcy) at Shardul Amarchand Mangaldas, said the amendment aims to streamline the voluntary liquidation process by reducing time limits and placing greater responsibilities on the liquidator. “The new Form-H requirement relieves some of the burden on contracting authorities, with relevant data and satisfaction of compliance checks being made available to them in a structured tabular format,” Rawat said.
Raj Bhalla, a partner at law firm MV Kini, said the IBBI had replaced the word “corporate debtor” with “legal person”, which was covered in the definition of “corporate debtor” earlier anyway. It also reduced the time frame for the completion of the liquidation process.
According to data from the IBBI, as of December 31, 2021, the process of voluntary liquidation in more than half of the companies in difficulty is still in progress. “Therefore, there was an urgent need to review the timelines involved in the voluntary liquidation process,” said Shivek Sharma, partner at Pioneer Legal. “Reducing the timelines associated with preparing the stakeholder list, distributing proceeds and overall completion of the voluntary liquidation process is an encouraging step towards a quick exit and efficient use of assets,” said Sharma.