On 12 February 2024, the Insolvency and Bankruptcy Board of India (IBBI) introduced the Insolvency and Bankruptcy Board of India (Liquidation Process) (Amendment) Regulations, 2024 (read here), aimed at enhancing the effectiveness and accountability of the liquidation process. A summary of the key amendments are as follows:
1. Reserve price adjustment: Where an auction fails, the liquidator may reduce the reserve price by up to 25% for future auctions with approval of the SCC, if the valuation of the assets of the corporate debtor was done during Corporate Insolvency Resolution Process (CIRP). Where a fresh valuation of the corporate debtor was done during the liquidation process, then the liquidator may decrease the reserve price once by up to 10% for future auctions with approval of the SCC.
2. SCC meeting frequency: Liquidators are now required to convene SCC meetings with a maximum interval of 30 days between two meeting. However, the SCC may reduce the frequency of meetings if deemed necessary, provided that at least a minimum of one meeting is held per quarter.
3. Compromise or Arrangement Proposals: Liquidators may file a compromise or arrangement proposal for the corporate debtor within 30 days of liquidation commencement date provided the same has been recommended by the Committee of Creditors during CIRP.
4. Reporting requirements: Liquidator is now required to present detailed progress reports at every SCC meeting, including legal proceedings and cost analyses. Where the estimated cost has been exceeded, the liquidator must provide an explanation for the overrun.
5. SCC consultation on legal proceedings: Before initiating or continuing legal actions, liquidator must consult the SCC and present the economic rationale.
6. Operations of the corporate debtor as Going Concern: The decision to operate the corporate debtor as a going concern requires SCC consultation, with strategic revisions after failed auctions also needing SCC input.
7. SCC consultation for early dissolution: The liquidator must consult the SCC and include their recommendations when applying for early dissolution of the corporate debtor to the National Company Law Tribunal (NCLT).
8. Extended payment period: Stakeholders entitled to funds in the Corporate Liquidation Account can now apply to the liquidator for withdrawal before or after the corporate debtor's dissolution. Upon verification of the claim, the liquidator will request IBBI to release funds for distribution, subsequently informing the NCLT of the disbursement.
9. Revision of compliance forms: The Compliance Certificate (Form H) has been revised to include more details on realizations and distributions to the stakeholders of the corporate debtor. Also, the proforma for reporting SCC consultation (Form A) has been updated to capture detailed consultation records with the SCC.
10. Exclusion of certain assets: Assets given to an allottee in a real estate project are excluded from the liquidation estate.
These amendments, effective from 12 February 2024, are designed to streamline the liquidation process, ensuring greater accountability and stakeholder confidence.
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.
