The insolvency regulator IBBI has proposed a review of the auction framework for corporate liquidations to curb potential collusion between liquidators and bidders, and aims to mandate stakeholder consensus in key decisions.
“It is also proposed that in case the highest bid above the reserve price, is being rejected by the liquidator, for any reason, consultation with Stakeholders Consultation Committee (SCC) will be mandatory”, said a new IBBI discussion paper floated on Tuesday.
“The discussion paper intends to curb discretionary power of liquidator in rejecting bids and makes consultation with SCC mandatory. This will improve transparency in decision making process,” Hari Hara Mishra, CEO, Association of ARCs in India told businessline.
IBBI now proposes to allow prospective bidders in the auction process to self-declare (on basis of an affidavit) their eligibility under Section 29A of IBC. In case the liquidator finds that a prospective bidder has submitted a wrong affidavit of being Section 29A compliant, then apart from losing the right to participate in the auction, the Earnest Money Deposit (EMD) of the bidder will stand forfeited, discussion paper has proposed.
“The provision of self declaration of eligible bidders is a measure which will ease submission of bids and help reduce timelines in liquidation,“ Mishra said.
This discussion paper involves five major proposals around liquidation process and voluntary liquidation process and public comments have to be submitted electronically by December 9.
Corporate Liquidation Account
As part of slew of proposed changes to liquidation regulations, the requirement of having the Corporate Liquidation Account (CLA) within the Public Accounts of India is also likely to be dispensed with, according to the discussion paper.
Instead, IBBI may be allowed to operate the CLA permanently. Direct management by the IBBI is expected to expedite claim processing and improve overall fund management . This arrangement would lead to more streamlined processes and quicker response time to stakeholder needs, IBBI discussion paper has said.
Also IBBI is proposed to be allowed to use the interest income to create awareness among stakeholders about the unclaimed proceeds and the process for claiming them.
Although the liquidation regulations currently mandate the requirement of having CLA in Public Accounts of India, it has so far not been operationalised. IBBI is currently operating a bank account (CLA) for this purpose on an interim basis.
“Operationalising a ‘Corporate Liquidation Account’, will allow for effective management of unclaimed proceeds by consolidation of funds.
The same seems to be a significant step forward in the IBC regime as it will provide opportunities for efficient disbursal processes, enhanced transperancy and open avenues for pro active use of such proceedings, considering the amendment allows use of interest income to raise awareness amongst the stakeholders.”Yogendra Aldak, partner, Lakshmikumaran and Sridharan said.