The Indian Insolvency and Bankruptcy Board has made significant changes to the liquidation process with the aim of reducing the time required for such proceedings.
IBBI is the agency responsible for implementing the Insolvency and Bankruptcy Code, 2016, and makes regulations for the insolvency resolution process.
The amendments introduced by the Board aim to streamline the liquidation process by reducing delays and to help realize better value for the liquidated entity.
The main changes include:
The CoC will operate as an SCC for the first 60 days
The creditors’ committee is now authorized to operate as a stakeholder consultation committee for the first 60 days of liquidation.
Once the claims have been decided and admitted, the Stakeholder Committee would be reconstituted on the basis of the admitted claim for the liquidation procedure.
Previously, SCC was appointed within 60 days of the start of liquidation during which time the liquidator made major decisions without SCC’s advice.
The functions of the SCC have also been expanded under the new amendments, raising it to a status closer to that of a creditors’ committee.
The amendment brings the liquidation process closer to that of the insolvency resolution process and democratizes it, says Piyush Mishra, partner at Luthra and Luthra Law Offices.
A more transparent and consultative process has been put in place, Mishra said.
The claim collected during the CIRP will be deemed to be a claim during the liquidation
Under the new amendments, if a stakeholder does not submit their claim, the claim they submitted during the insolvency resolution process will also be deemed to be their claim during the liquidation process.
This change will help reduce duplication of processes that have already been undertaken, said Ashwyn Misra, Partner at Trilegal.
Mishra pointed out that liquidation is an extension of the corporate insolvency resolution process. There is no reason why complaints submitted during the CIRP should not be considered later, he said.
SCC can now easily replace the liquidator
The amendments also include changes to the process for replacing a liquidator for liquidation proceedings.
After the amendments, a liquidator can be replaced with 66% of the votes of the stakeholder consultation committee.
The new framework resolves a major difficulty of the previous regime and is a positive regulatory element, Mishra said.
Tougher deadlines for auctions, compromise
Various changes have been introduced to ensure that the liquidation is completed in a timely and structured manner.
It includes the following elements:
Timelines for the auction process are provided under the new regulations. Auction must be completed within 45 days of start of clearance. The bidder can prove their eligibility within 14 days of the public notice and the deposit must be deposited at least two days before the auction.
Timelines are also provided for successive auctions. A notice of successive auctions will be issued within 15 days of the failure of the last auction.
The request for compromise must now be made within 30 days of the start of the liquidation against 90 days granted initially.
These changes will help ensure that the liquidation process is completed in a timely manner, Misra said.
Retention of Records After Liquidation
Records retention regulations have also undergone changes. Under the new amendments, records must be physically retained for a period of three years instead of the previous requirement of eight years. This aligns the liquidation regulations with those of the CIRP.