The Insolvency and Bankruptcy Board of India (IBBI) notified IBBI (Voluntary Liqudiation Process) (Amendment) Regulation, 2024 (Amendment Regulations) on 31 January 2024. The Amendment Regulations enhance disclosure requirements with respect to voluntary liquidation regulations aimed to streamline the process further.

The key changes introduced by the Amendment Regulations are summarized below:

Sr No. Amendment Comments
1 Disclosure of pending litigation, if any, and provision in respect thereof
  • The Amendment Regulations prescribe that the declaration of solvency by directors should disclose pending proceedings or assessments before statutory authorities and pending litigations.
  • Furthermore, such declaration should also include a statement that "the Corporate Person has made sufficient provision to meet the obligations arising on account of pending matters."
2 Status Report in case voluntary liquidation exceeds prescribed days from commencement date
  • As per Amendment Regulations, in case of voluntary liquidation process exceeds 90 days (270 days in case voluntary liquidation was initiated with the approval of the creditor(s)) from the commencement date, the liquidator is required to conduct a meeting of contributories.
  • Such meeting shall be conducted within 15 days from the end of 90 days (270 in case voluntary liquidation was initiated with the approval of the creditor(s)) and thereafter at the end of every such succeeding period.
  • The liquidator has to submit the status report with the IBBI within seven days of the meeting of contributories stating that the reasons for not completing the process within the stipulated time period and the additional time required for completing the process.
3 Claims for unclaimed dividends and unclaimed proceeds by stakeholders
  • The Amendment Regulations provide that, prior to the dissolution of a corporate person, if any stakeholder claims entitlement for an amount deposited in a corporate voluntary liquidation account, such stakeholder needs to apply to the liquidator in Form I for withdrawal of the amount.
  • On receipt of such a claim, the liquidator shall verify the claim and request the IBBI to release the amount to him for onward distribution to the concerned stakeholder.
  • The liquidator is required to intimate the adjudicating authority about the distribution before the dissolution.
  • Any claims by stakeholders after the dissolution of the corporate person need to be made to the IBBI directly in Form I.

Our Comments
In October 2023, IBBI floated a discussion paper to streamline the voluntary liquidation process and invited public comments on draft voluntary liquidation process regulations covering the above aspects. The prime objective behind the voluntary liquidation regulation was stated to be to provide for a completely market-driven approach in the voluntary liquidation process to ensure faster outcomes at the least possible cost. The Amendment Regulations seek to expedite the voluntary liquidation process further.

In line with that, the Amendment Regulations seek to prescribe the disclosure requirements in terms of disclosure of pending litigations and submission of status reports. It further prescribes the process to claim the distribution after liquidation of affairs of the corporate person but before dissolution. The liquidator is entrusted with verification of any such distribution claim before the dissolution of the corporate person. IBBI observed that the delay is generally on account of delay in making foreign remittances, pending appeals regarding demand/penalty imposed and refund from statutory departments and other litigations. Therefore, it prescribed the disclosure of pending litigations, if any, at the commencement of liquidation and further prescribed to state that sufficient provision has been made to meet the obligation arising, if any, on account of such pending matters. This is a welcome step as it re-emphasizes that liquidation can be proceeded amidst pending litigation. However, it would have been better if some guidance was given on how such a provision can be made. In the absence of such guidance, this is an onerous declaration on the part of the directors. Also, the periodical status report has increased the compliance burden as the meeting of contributories and audit of the liquidation accounts is required to comply with the status report submission.

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.