India is increasingly becoming one of favoured business destinations on the international scale. This is attributable to a number of factors including the schemes and policies introduced by the Government from time to time. One of the major reasons for the improvement of the country's position in the parameter of 'Ease of Doing Business' is the development of an efficient insolvency and bankruptcy resolution mechanism.
Insolvency and Bankruptcy Resolution
The Government introduced the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the "IBC") with the aim to making availability of credit more transparent by maximizing the value of the assets in a time-bound manner. The provisions of the IBC are monitored under the regulatory authority of the Insolvency and Bankruptcy Board (hereinafter referred to as "IBBI") ensuring efficacious implementation of the fundamentals laid down under the IBC.
Liquidation is the process which causes a business to close, so that its assets can be sold off to pay its pending dues. Instilling faith in the judicial authority and the aiding recovery of the lent credit, the IBC works out for opportunities to revive the company under insolvency resolution process before eventual disposal of assets to pay off its debts. The liquidation of a company is monitored under the provisions of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 (hereinafter referred to as "Liquidation Regulations").
Amendments to the Liquidation Regulations
In order to ensure proper implementation of the Liquidation Regulations with the objective of resolving the problem of bad loans, amendments have been brought via notification dated October 22, 2018. Some of the features of the said amendments are listed below:
- Regulation 32 has been substituted by
the provision for Sale of Assets, etc. whereunder the liquidator
- an asset on a standalone basis;
- the assets in a slump sale;
- a set of assets collectively;
- the assets in parcels;
- the corporate debtor as a going concern; or
- the business(s) of the corporate debtor as a going concern:
- Regulation 34 (2) (b) has been substituted by the provision for asset memorandum requiring to details in respect value of the assets or business(s) under clauses (b) to (f) of regulation 32, valued in accordance with regulation 35, if intended to be sold.
- Regulation 35 has been substituted by
the provision for valuation of assets or business intended to be
- Where the valuation has been conducted under regulation 35 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 or regulation 34 of the Insolvency and Bankruptcy Board of India (Fast Track Insolvency Resolution Process for Corporate Persons) Regulations, 2017, as the case may be, the liquidator shall consider the average of the estimates of the values arrived under those provisions for the purposes of valuations under these regulations.
- In cases not covered under
sub-regulation (1), the liquidator shall within seven days of the
liquidation commencement date, appoint two registered valuers to
determine the realisable value of the assets or businesses under
clauses (a) to (f) of regulation 32 of the corporate debtor:
Provided that the following persons shall not be appointed as
registered valuers, namely:
- a relative of the liquidator;
- a related party of the corporate debtor;
- an auditor of the corporate debtor at any time during the five years preceding the insolvency commencement date; or
- a partner or director of the insolvency professional entity of which the liquidator is a partner or director.
- The Registered Valuers appointed under sub-regulation (2) shall independently submit to the liquidator the estimates of realisable value of the assets or businesses, as the case may be, computed in accordance with the Companies (Registered Valuers and Valuation) Rules, 2017, after physical verification of the assets of the corporate debtor.
- The average of two estimates received under sub-regulation (3) shall be taken as the value of the assets or businesses.
IBC prevents the unscrupulous debtors from escaping the repayment of their debts by taking recourse to insolvency. With a view to ascertain adequate details, valuation and sale of the assets of the company undergoing liquidation modifications have been introduced the Liquidation Regulations assuring proper reliefs to the bonafide creditors.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.