Distribution of Assets by the Liquidator [ Section 53 ] - Insolvency Resolution And Liquidation For Corporate Persons - IBC

Distribution of Assets by the Liquidator The principal duty of the liquidator is to invite and settle the claims of creditors and claimants and to distribute proceeds according to the provisions of the IBC. Hence, once claims are consolidated, unless the CD is subject to a section 230 scheme, the liquidator proceeds to form the liquidation estate and sell the CD or its assets as per the Liquidation Process Regulations. The liquidation estate, including the proceeds of any sale, is then to be distributed to the stakeholders, before bringing the life of the CD to an end by way of dissolution. Distribution of proceeds from the sale of the liquidation assets [ Section 53(1) ] Notwithstanding anything to the contrary contained in any law enacted by the Parliament or any State Legislature for the time being in force, the proceeds from the sale of the liquidation assets shall be distributed in the following order of priority and within such period and in such manner as may be specified, namely :- (a) the insolvency resolution process costs and the liquidation costs paid in full; (b) the following debts which shall rank equally between and among the following :- (i) workmen's dues for the period of twenty-four months preceding the liquidation commencement date; and (ii) debts owed to a secured creditor in the event such secured creditor has relinquished security in the manner set out in section 52 ; (c) wages and any unpaid dues owed to employees other than workmen for the period of twelve months preceding the liquidation commencement date; (d) financial debts owed to unsecured creditors; (e) the following dues shall rank equally between and among the following :- (i) any amount due to the Central Government and the State Government including the amount to be received on account of the Consolidated Fund of India and the Consolidated Fund of a State, if any, in respect of the whole or any part of the period of two years preceding the liquidation commencement date; (ii) debts owed to a secured creditor for any amount unpaid following the enforcement of security interest; (f) any remaining debts and dues; (g) preference shareholders, if any; and (h) equity shareholders or partners, as the case may be. Disregard of order of priority [ Section 53(2) ] Any contractual arrangements between recipients under section 53(1) with equal ranking, if disrupting the order of priority under that sub-section shall be disregarded by the liquidator. Fee to Liquidator [ Section 53(3) ] The fees payable to the liquidator shall be deducted proportionately from the proceeds payable to each class of recipients under section 53(1), and the proceeds to the relevant recipient shall be distributed after such deduction. Explanation .-For the purpose of this section- (i) it is hereby clarified that at each stage of the distribution of proceeds in respect of a class of recipients that rank equally, each of the debts will either be paid in full, or will be paid in equal proportion within the same class of recipients, if the proceeds are insufficient to meet the debts in full; and (ii) the term workmen's dues shall have the same meaning as assigned to it in section 326 of the Companies Act, 2013 . Commencing Distribution Regulation 42 of IBBI of (Liquidation Process) Regulation, 2016 Subject to the provisions of section 53 , the liquidator shall not commence distribution before the list of stakeholders and the asset memorandum has been filed with the Adjudicating Authority. The liquidator shall distribute the proceeds from realization within 90 days from the receipt of the amount to the stakeholders. Regulation 42(3) state that the insolvency resolution process costs, if any, and the liquidation costs shall be deducted before such distribution is made. All money to be paid in to bank account - Regulation 41 IBBI (Liquidation Process) Regulation, 2016 (1) The liquidator shall open a bank account in the name of the corporate debtor followed by the words 'in liquidation', in a scheduled bank, for the receipt of all moneys due to the corporate debtor. (2) The liquidator shall deposit in the bank account opened under sub-regulation (1) all moneys, including cheques and demand drafts received by him as the liquidator of the corporate debtor, and the realizations of each day shall be deposited into the bank account without any deduction not later than the next working day. (3) The liquidator may maintain a cash of one lakh rupees or such higher amount as may be permitted by the Adjudicating Authority to meet liquidation costs. (4) All payments out of the account by the liquidator above 5,000/- rupees shall be made by cheques drawn or online banking transactions against the bank account. Distribution of unsold assets Regulation 38 of IBBI (Liquidation Process Regulation, 2016 (1) The liquidator may, with the permission of the Adjudicating Authority, distribute amongst the stakeholders, an asset that could not be sold, assigned or transferred due to its peculiar nature or other special circumstances. (2) The application seeking permission of the Adjudicating Authority under sub-regulation (1) shall- (a) identify the asset; (b) provide a value of the asset; (c) detail the efforts made to sell the asset, if any; and (d) provide reasons for such distribution. Liquidator to realize uncalled capital or unpaid capital contribution Regulation 40 of IBBI (Liquidation Process) Regulation, 2016 (1) The liquidator shall realize any amount due from any contributory to the corporate debtor. (2) Notwithstanding any charge or encumbrance on the uncalled capital of the corporate debtor, the liquidator shall be entitled to call and realize the uncalled capital of the corporate debtor and to collect the arrears, if any, due on calls made prior to the liquidation, by providing a notice to the contributory to make the payments within fifteen days from the receipt of the notice, but shall hold all moneys so realized subject to the rights, if any, of the holder of any such charge or encumbrance. (3) No distribution shall be made to a contributory, unless he makes his contribution to the uncalled or unpaid capital as required in the constitutional documents of the corporate debtor. Explanation : For the purpose of this chapter and Schedule I, 'assets' include an asset, all assets, a set of assets or parcel of assets, business as the case may be, which are being sold. Return of money Regulation 43 of IBBI (Liquidation Process) Regulation, 2016 provides that A stakeholder shall forthwith return any monies received by him in distribution, which he was not entitled to at the time of distribution, or subsequently became not entitled to. Relevant Case Laws Union of India Vs. Infrastructure Leasing Financial Services Ltd. Ors. - NCLAT Dated 12.03.2020 Section 53 of the Code will not be followed for distribution in the case as it would cause injustice to shareholders who have invested public money in Infrastructure Leasing Financial Services Ltd. and its group companies and therefore the pro-rata distribution as proposed by the Central Government was accepted. Swiss Ribbons Pvt. Ltd. Anr. Vs. Union of India Ors. - SC Dated 25.01.2019 There is an intelligible differentia between the financial debts and operational debts, which are unsecured, which has direct relation to the object sought to be achieved by the Code. It can be seen that unsecured debts are of various kinds and as long as there is some legitimate interests sought to be protected, having relation to the object sought to be achieved by the statute in question, Article 14 of the Constitution does not get infracted. Accordingly, validity of section 53 was upheld. Binani Industries Ltd. Vs. Bank of Baroda Anr. - NCLAT Dated 14.11.2018 Section 53 , including Explanation given therein cannot be relied upon while approving the resolution plan. However, that does not mean that a discriminatory plan can be placed and can get through on one or other ground, which is against the basic object of maximization of the assets of the CD on one hand and for balancing the stakeholders on the other. Pinakin Shah Liquidator of Brew Berry Hospitalities Pvt. Ltd. Vs. The Assistant Commissioner of State Tax Anr. - NCLAT Dated 25.02.2021 Liquidation proceedings are time-bound to maximize the value and all the creditors are entitled to get their dues only in terms of section 53 of the Code and different creditors cannot be allowed to resort to different proceedings and enactments only because they are authorities under earlier enactments considering the provision of section 238 of the IBC 2016.