Bankruptcy Board sets out the process for liquidation of companies

The Insolvency and Bankruptcy Board of India (IBBI), which has notified the liquidation process of companies, has prohibited an insolvency professional from acting as a liquidator for a corporate debtor if he is not independent of the corporate debtor.

IBBI notified the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 on Thursday.

The new set of regulations provide for, among other things, details of activities to be undertaken — from issue of liquidation order under Section 33 of the Code to dissolution order under Section 54. The regulations will come into force with immediate effect.

IBBI’s new regulations also prohibit partners/directors of an insolvency professional entity of which the insolvency professional is a partner/director from representing other stakeholders in the same liquidation process.

“These oblige the liquidator, and also registered valuer(s) and professional(s) assisting him in liquidation to make disclosures — initial and continuing — about pecuniary or personal relationship with any of the stakeholders entitled to distribution of assets,” the notification said.

IBBI regulations also specify the manner and content of public announcement, receipt and verification of claims of stakeholders, reports and registers to be maintained, preserved and submitted by the liquidator, the manner of realisation of assets and security interest, and distribution of proceeds to stakeholders.

These regulations provide that a liquidator should ordinarily sell the assets through auctions. He may sell the assets through private sale only when the asset is perishable; the asset is likely to deteriorate in value significantly if not sold immediately; or the asset is sold at a price higher than the reserve price of a failed auction.

He may sell an asset on standalone basis or assets in a slump sale, assets in parcels or a set of assets collectively.

The regulations provide that the fee payable to a liquidator shall form part of the liquidation cost. These further provide that a liquidator shall be paid such fees and in such manner as has been decided by the committee of creditors during the resolution process.

In all other cases, the liquidator shall be entitled to a fee as a percentage of the amount realised net of other liquidation costs and of the amount distributed.