STAKEHOLDERS’ CONSULTATIVE COMMITTEE UNDER LIQUIDATION PROCESS – A REVISIT

[Mr. M. GOVINDARAJAN]

Introduction

Regulation 31A of Insolvency and Bankruptcy of India (Liquidation Process) Regulations, 2016 provides that the liquidator, appointed by the Adjudicating Authority in liquidation process of a corporate debtor, shall constitute Stakeholders’ Consultative Committee. 

The said Regulation 31A has been dramatically changed by the Insolvency and Bankruptcy Board of India (Liquidation Process) (Second Amendment) Regulations, 2022 vide Notification No. IBBI/2022-23/GN/REG094, dated 16.09.2022.  The amended provisions came into effect from 16.09.2022. By these amendment the Stakeholders’ Consultative Committee has attained the new shape, status and having more powers in liquidation process.

Constitution

Regulation 32A(1) provides that the liquidator shall constitute a consultation committee, comprising of all creditors of the corporate debtor, within sixty days from the liquidation commencement date, based on the list of stakeholders prepared under regulation 31.

The liquidator may facilitate the stakeholders of each class namely financial creditors in a class, workmen, employees, government departments, other operational creditors, shareholders, partners, to nominate their representative for participation in the consultation committee. 

If the stakeholders of any class fail to nominate their representatives, such representatives shall be selected by a majority of voting share of the class, present and voting.   The representatives in the consultation committee shall have access to all relevant records and information as may be required to provide advice to the liquidator.

A secured creditor who has not relinquished his security interest under section 52 shall not be part of the consultation committee.

Regulation 32A (1A) provides that the committee of creditors under section 21 shall function as the consultation committee with same voting rights till constitution of the consultation committee.

Where a consultation committee under Regulation 31A has been constituted before the commencement of Insolvency and Bankruptcy Board of India (Liquidation Process) (Second amendment) Regulations, 2022, the liquidator within 30 days of the commencement of the said Regulations, shall reconstitute the consultation committee as required under the said Regulations and provisions provided under amended Regulation 31A shall come into effect only after such constitution.

Advisory power

The Stakeholders’ Consultative Committee shall advise the liquidator on matters relating to-

• remuneration of professionals appointed under regulation 7;
•  sale under regulation 32, including manner of sale, pre-bid qualifications, reserve price, marketing strategy and auction process.;
• fees of the liquidator;
• valuation under sub- regulation (2) of regulation 35;
• the manner in which proceedings in respect of preferential transactions, undervalued transaction, extortionate credit transaction or fraudulent or wrongful trading, if any, shall be pursued after closure of liquidation proceedings and the manner in which the proceeds, if any, from these proceedings shall be distributed.

The consultation committee shall advise the liquidator, by a vote of not less than 66% of the representatives of the consultation committee, voting.

Voting Rights

Regulation 32A(5) provides that the voting share of a member of the consultation committee shall be in proportion to his admitted claim in the total admitted claim.  The promoters, directors, partners or their representatives may attend the meeting of the consultation committee, but shall not have any right to vote.  A financial creditor or his representative, if he is a related party of the corporate debtor, shall not have right to vote.  The representative shall vote in proportion to the voting share of the stakeholders it represents.

Meeting

The liquidator shall convene the first meeting of the consultation committee within seven days of the liquidation commencement date.  The liquidator may convene other meetings, if he considers necessary, on a request received from one or more members of the consultation committee. 

When a request is received by the liquidator from members, individually or collectively, having at least thirty three percent of the total voting rights, the liquidator shall mandatorily convene the meeting.

The liquidator shall chair the meetings of consultation committee and record deliberations of the meeting.   The liquidator shall place the recommendation of committee of creditors before the consultation committee for its information.  

Binding nature

The advice of the consultation committee shall not be binding on the liquidator:  Where the liquidator takes a decision different from the advice given by the consultation committee, he shall record the reasons for the same in writing submit the records relating to the said decision, to the Adjudicating Authority and to the Board within 5 days of the said decision; and include it in the next progress report. 

The above said is applicable only for liquidation process commencing on or after 16.09.2022.

Replacement of liquidator

The consultation committee, after recording the reasons, may by a majority vote of not less than 66% propose to replace the liquidator and shall file an application, after obtaining the written consent of the proposed liquidator in Form AA of the Schedule II, before the Adjudicating Authority for replacement of the liquidator. 

The liquidator, till his replacement, shall continue to work.  The liquidator shall be suitably remunerated for such period.