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TMI BlogCHANGES IN THE LIQUIDATION PROCESS OF CORPORATE DEBTORX X X X Extracts X X X X X X X X Extracts X X X X ..... CHANGES IN THE LIQUIDATION PROCESS OF CORPORATE DEBTOR - By: - Mr. M. GOVINDARAJAN - Corporate Laws / IBC / SEBI - Dated:- 4-9-2019 - - Introduction The Insolvency and Bankruptcy Board of India notified the Insolvency and Bankruptcy Board of India (Liquidation Process) (Amendment) Regulations, 2019 (Amendment Regulations) on 25th July, 2019 . They came into force on the date of their publication in the Official Gazette, that is, on 25th July, 2019. The amendment brought many a change to the main regulations. The amendment revised the liquidator s fees, introduced a new concept of consultation committee, liquidation costs, time line for completion of liquidation process etc., Consultation Committee Regulation 2(1) (ba) defines the expression consultation committee as the stakeholders consultation committee constituted under sub-regulation (1) of regulation 31A. The liquidator shall constitute a consultation committee within sixty days from the liquidation commencement date, based on the list of stakeholders prepared under regulation 31 , to advise him on the matters relating to sale under regulation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 32 . The composition of the consultation committee under sub-regulation (1) shall be as shown in the Table below: Class of Stakeholders Description Number of Representatives (1) (2) (3) Secured financial creditors, who have relinquished their security interests under section 52 Where claims of such creditors admitted during the liquidation process is less than 50% of liquidation value Number of creditors in the category, subject to a maximum of 2 Where claims of such creditors admitted during the liquidation process is at least 50% of liquidation value Number of creditors in the category, subject to a maximum of 4 Unsecured financial creditors Where claims of such creditors admitted during the liquidation process is less than 25% of liquidation value Where claims o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f such creditors admitted during the liquidation process is at least 25% of liquidation value Number of creditors in the category, subject to a maximum of 1 Number of creditors in the category, subject to a maximum of 2 Workmen and employees 1 1 Governments 1 1 Operational creditors other than Workmen, employees and Governments Where claims of such creditors admitted during the liquidation process is less than 25% of liquidation value Number of creditors in the category, subject to a maximum of 1 Where claims of such creditors admitted during the liquidation process is at least 25 % of liquidation value Number of creditors in the category, subject to a maximum of 2 Shareholders or partners, if any 1 The liquida ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor may facilitate the stakeholders of each class to nominate their representatives for inclusion in the consultation committee. If the stakeholders of any class fail to nominate their representatives, the required number of stakeholders with the highest claim amount in that class shall be included in the consultation committee. Subject to the provisions of the Code and these regulations, representatives in the consultation committee shall have access to all relevant records and information as may be required to provide advice to the liquidator. The liquidator shall convene a meeting of the consultation committee when he considers it necessary and shall convene a meeting of the consultation committee when a request is received from at least 51% of representatives in the consultation committee. 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 made under of regulation 39C(1) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Persons) Regulations, 2016 , before the consultation committee for its information. The consultation committee shall advise the liquidator, by a vote of not less than 66% of the representatives of the consultation committee, present and voting. 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. Liquidation Cost Regulation 2(1)(ea) defines the expression liquidation cost as- fee payable to the liquidator under regulation 4; remuneration payable by the liquidator under regulation 7(1); costs incurred by the liquidator under regulation 24(2); costs incurred by the liquidator for preserving and protecting the assets, properties, effects and actionable claims, including secured assets, of the corporate debtor; costs incurred by the liquidator in carrying on the business of the corporate debtor as a going concern; i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest on interim finance for a period of 12 months or for the period from the liquidation commencement date till repayment of interim finance, whichever is lower; the amount repayable to contributories under regulation 2A(3); any other cost incurred by the liquidator which is essential for completing the liquidation process. The cost, if any, incurred by the liquidator in relation to compromise or arrangement under section 230 of the Companies Act, 2013 , if any, shall not form part of liquidation cost. Contribution to liquidation costs Where the committee of creditors did not approve a plan the liquidator shall call upon the financial creditors, being financial institutions, to contribute the excess of the liquidation costs over the liquid assets of the corporate debtor, as estimated by him, in proportion to the financial debts owed to them by the corporate debtor. The contributions made under the plan approved or contributions shall be deposited in a designated escrow account to be opened and maintained in a scheduled bank, within seven days of the passing of the liq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uidation order. The amount contributed shall be repayable with interest at bank rate referred to in section 49 of the Reserve Bank of India Act, 1934 as part of liquidation cost. Compromise or arrangement Where a compromise or arrangement is proposed under section 230 of the Companies Act, 2013 it shall be completed within 90 days of the order of liquidation. The time taken on compromise or arrangement, not exceeding ninety days, shall not be included in the liquidation period. Any cost incurred by the liquidator in relation to compromise or arrangement shall be borne by the corporate debtor, where such compromise or arrangement is sanctioned by the Tribunal under section 230(6) . Such cost shall be borne by the parties who proposed compromise or arrangement, where such compromise or arrangement is not sanctioned by the Tribunal under section 230(6). Liquidator s fee The fee payable to the liquidator shall be in accordance with the decision taken by the committee of creditors under regulation 39D of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate Persons) Regulations, 2016. In cases other than those covered above, the liquidator shall be entitled to a fee- at the same rate as the resolution professional was entitled to during the corporate insolvency resolution process, for the period of compromise or arrangement under section 230 of the Companies Act, 2013 ; and as a percentage of the amount realized net of other liquidation costs, and of the amount distributed, for the balance period of liquidation, as under: Amount of Realization/Distribution (In rupees) Percentage of fee on the amount realized / distributed in the first six months in the next six months thereafter Amount of Realization (exclusive of liquidation costs) On the first 1 crore 5.00 3.75 1.88 On the next 9 crore 3.75 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2.80 1.41 On the next 40 crore 2.50 1.88 0.94 On the next 50 crore 1.25 0.94 1.51 On further sums realized 0.25 0.19 0.10 Amount Distributed to Stakeholders On the first 1 crore 2.50 1.88 0.94 On the next 9 crore 1.88 1.40 0.71 On the next 40 crore 1.25 0.94 0.47 On the next 50 crore 0.63 0.48 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.25 On further sums distributed 0.13 0.10 0.05 Where the fee is payable as above, the liquidator shall be entitled to receive half of the fee payable on realization only after such realized amount is distributed. Public announcement Regulation 12(2) provides that the public announcement shall- call upon stakeholders to submit their claims or update their claims submitted during the corporate insolvency resolution process, as on the liquidation commencement date; and provide the last date for submission or updation of claims, which shall be 30 days from the liquidation commencement date. Submission of claim Regulation 16 provides that a person, who claims to be a stakeholder, shall submit its claim, or update its claim submitted during the corporate insolvency resolution process, including interest, if any, on or before the last date mentioned in the public announcement. A person shall prove its claim for debt or dues ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to him, including interest, if any, as on the liquidation commencement date. Presumption of security interest Regulation 21A provides that a secured creditor shall inform the liquidator of its decision to relinquish its security interest to the liquidation estate or realize its security interest, as the case may be, in Form C or Form D of Schedule II. Where a secured creditor does not intimate its decision within thirty days from the liquidation commencement date, the assets covered under the security interest shall be presumed to be part of the liquidation estate. Where a secured creditor proceeds to realize its security interest, it shall pay as much towards the amount payable under clause (a) and sub-clause (i) of clause (b) of sub-section (1) of section 53 , as it would have shared in case it had relinquished the security interest. Sale as a going concern Where the committee of creditors has recommended sale under clause (e) or (f) of regulation 32 or where the liquidator is of the opinion that sale under clause (e) or (f) of regulation 32 shall maximize the value of the corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te debtor, he shall endeavor to first sell under the said clauses. For the purpose of sale the group of assets and liabilities of the corporate debtor, as identified by the committee of creditors under regulation 39C(2) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 shall be sold as a going concern. Where the committee of creditors has not identified the assets and liabilities under regulation 39C(2) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 , the liquidator shall identify and group the assets and liabilities to be sold as a going concern, in consultation with the consultation committee. If the liquidator is unable to sell the corporate debtor or its business under clause (e) or (f) of regulation 32 within 90 days from the liquidation commencement date, he shall proceed to sell the assets of the corporate debtor under clauses (a) to (d) of regulation 32 . Distribution Regulation 42 (2) provides that The liquidator shall distribute th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e proceeds from realization within 6 months from the receipt of the amount to the stakeholders. The said period is reduced to 90 days. Completion of liquidation The liquidator shall liquidate the corporate debtor within a period of one year (previously 2 years) from the liquidation commencement date, notwithstanding pendency of any application for avoidance of transactions under Chapter III of Part II of the Code, before the Adjudicating Authority or any action thereof: where the sale is attempted under sub-regulation (1) of regulation 32A, the liquidation process may take an additional period up to ninety days. If the liquidator fails to liquidate the corporate debtor within one year (previously 2 years), he shall make an application to the Adjudicating Authority to continue such liquidation, along with a report explaining why the liquidation has not been completed and specifying the additional time that shall be required for liquidation. Final report prior to dissolution Regulation 45(3) provides that the liquidator shall submit an application along with the final report and the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompliance certificate in form H to the Adjudicating Authority for closure of the liquidation process of the corporate debtor where the corporate debtor is sold as a going concern; or for the dissolution of the corporate debtor, in cases not covered above. Model time line The amendment provides a new time line for completion of liquidation process like that of the time line fixed in the corporate insolvency resolution process. Regulation 47 gives a model time line of liquidation process of corporate debtor from the liquidation commencement date assuming that the process does not include compromise or arrangement under section 230 of the Companies Act, 2013 or sale under regulation 32A : Sl. No. Section / Regulation Description of Task Norm Latest Timeline (Days) (1) (2) (3) (4) (5) 1 Section 33 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 34 Commencement of liquidation and appointment of liquidation Liquidation Commencement Date (LCD) 0 = T 2 Section 33 (1) (b) (ii) / Reg. 12 (1, 2, 3) Public announcement in Form B Within 5 days of appointment of liquidator. T + 5 3 Reg. 35 (2) Appointment of registered valuers Within 7 days of LCD T + 7 4 Section 38 (1) and (5), Reg. 17 , 18 and 21A Submission of claims; Intimation of decision on relinquishment of security interest Within 30 days of LCD T + 30 5 Section 38 (5) Withdrawal/ modification of claim Within 14 days of submission of claim T + 44 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 Reg. 30 Verification of claims received under regulation 12(2)(b) Within 30 days from the last date for receipt of claims T + 60 7 Reg. 31A Constitution of Stakeholders Consultation Committee Within 60 days of LCD T + 60 8 Section 40 (2) Intimation about decision of acceptance/rejection of claim Within 7 days of admission or rejection of claim T + 67 9 Reg. 31 (2) Filing the list of stakeholders and announcement to public Within 45 days from the last date of receipt of claims T + 75 10 Section 42 Appeal by a creditor against the decision ofthe liquidator Within 14 days of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipt of such decision T + 81 11 Reg. 13 Preliminary report to the Adjudicating Authority Within 75 days of LCD T + 75 12 Reg. 34 Asset memorandum Within 75 days of LCD T + 75 13 Reg. 15 (1), (2), (3), (4) and (5) , and 36 Submission of progress reports to AA; Asset Sale report to be enclosed with every Progress Report, if sales are made First progress report Q-2 Q 3 Q-4 FY: 1 Audited accounts of liquidator's receipt payments for the financial yea Q1 + 15 Q2+15 Q3+15 Q4+15 15 th April 14 Proviso to Reg. 15 (1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Progress report in case of cessation of liquidator Within 15 days of cessation as liquidator Date of cessation + 15 15 Reg. 37 (2, 3) Information to secured creditors Within 21 days of receipt of intimation from secured creditor Date of intimation + 21 16 Reg. 42 (2) Distribution of the proceeds to the stakeholders Within 3 months from the receipt of amount Date of Realization + 90 17 Reg.10 (1) Application to AA for Disclaimer of onerous property Within 6 months from the LCD T + 6 months 18 Reg.10 (3) Notice to persons interested in the onerous property or contract At least 7 days before making an application to AA for disclosure. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19 Reg. 44 Liquidation of corporate debtor. Within one year T + 365 20 Reg. 46 Apply to AA for order on unclaimed proceeds of liquidation or undistributed assets. Before dissolution order 21 Sch-1 Sl. No 12 Time period to H1 bidder to provide balance sale consideration Within 90 days of the date of invitation to provide the balance amount. Clarifications The stakeholders represented the Board that they could not align with the new regulations for the liquidation process commenced before 25.07.2019. The Board clarified that the provisions of the Amendment Regulations are not applicable to the liquidation processes, which had commenced before coming into force of the said Amendment Regulations and that they are applicable only to liquidation processes, which commenced on or after 25th July, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19. - - Scholarly articles for knowledge sharing authors experts professionals Tax Management India - taxmanagementindia - taxmanagement - taxmanagementindia.com - TMI - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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