Strengthening Liquidation And Voluntary Liquidation Processes – Recent Amendments

The Insolvency & Bankruptcy Board of India (“IBBI”) has notified the IBBI (Liquidation Process) (Amendment) Regulations, 2025 (“Liquidation Process Amendment”) and the IBBI (Voluntary Liquidation Process) (Second Amendment) Regulations, 2025 (“Voluntary Liquidation Process Amendment”) on January 28, 2025 which amend the IBBI (Liquidation Process) Regulations, 2016 (“LP Regulations”) and the IBBI (Voluntary Liquidation Process) Regulations, 2016 (“VLPRegulations”). These amendments are aimed at reducing delays and strengthening the liquidation and voluntary liquidation processes by making it more transparent.

Key highlights of the new amendments:

1. Submission of final report: The Liquidation Process Amendment amends regulation 45(3)(a) of the LP Regulations. Under the new amendment, the liquidator is mandated to file a final report and compliance certificate in Form-H with the adjudicating authority even where a compromise or arrangement has been sanctioned under section 230 of the Companies Act, 2013.
2. Corporate Liquidation Account and Corporate Voluntary Liquidation Account: The Liquidation Process Amendment amends regulation 46(1) of the LP Regulations. Earlier, the IBBI was required to maintain and operate the Corporate Liquidation Account in the Public Accounts of India, while now the said account will have to be maintained with a scheduled bank. Clause 39(1) of the VLP Regulations have been similarly amended in respect of Corporate Voluntary Liquidation Account by the Voluntary Liquidation Process Amendment.
3. Filing of forms: The Liquidation Process Amendment inserts regulation 47B to the LP Regulations, which mandates the liquidator to file Forms LIQ 1, LIQ 2, LIQ 3, and LIQ 4 at different stages of the liquidation process, covering separate aspects, within specified timelines. The Voluntary Liquidation Process Amendment inserts a similar provision in regulation 41A of the VLP Regulations, mandating the liquidator to file Forms VL 1, VL 2, VL 3, and VL 4 within specified timelines. These newly inserted regulations also impose a penalty of Rs. 500/- per Form for each month of delay after the specified deadline. Additionally, IBBI may also take any action it deems fit against the liquidator for failure to file a Form along with requisite information and records, or inaccurate/incomplete information or records filed in/along with a Form, or for delay in filing of a Form.
4. Conduct of auction: The Liquidation Process Amendment omits clause 1D from Schedule I (Mode of Sale), as per which the liquidator was mandated to provide at least 14 (fourteen) days from issue of public notice of auction for submission of eligibility documents by the prospective bidder. It also substitutes clause 1E from Schedule I, by which the liquidator is mandated to provide access to the assets to be auctioned to the prospective bidder for conducting inspection and due diligence. Prior to substitution, regulation 1E allowed at least 7 (seven) days to only the qualified bidder for accessing the auctioned assets.
5. Eligibility criteria for prospective bidders in LP Regulations: The Liquidation Process Amendment inserts clause 5A to Schedule I of LP Regulations, which requires prospective bidders to comply with section 29A of the Insolvency & Bankruptcy Code, 2016 (“IBC”), by submitting an undertaking to the effect that they do not suffer from any ineligibility under section 29A. If they are found ineligible at any stage, the earnest money deposited by the prospective bidder shall be forfeited – which is also provided under a newly added clause 12D. Clause 12A is also inserted into Schedule I, which requires the liquidator to conduct due diligence and verify the eligibility of the highest bidder within 3 (three) days of declaration. The liquidator is further mandated, under a newly added clause 12B, to present the auction results, details of the highest bidder and the due diligence conducted on the highest bidder to the stakeholders consultation committee (“SCC”). Thereafter, the liquidator, after consulting the SCC, shall declare the highest bidder as the successful bidder or reject such bid - which is provided under the newly added clause 12C. Under the newly added clause 12E, the liquidator may, after consulting the SCC, declare the next highest bidder as the successful bidder if the highest bidder is found ineligible.
6. Additional disclosures for deposit of unclaimed dividends/ undistributed proceeds: Under regulation 46(5) of the Liquidation Process Regulations, the liquidator is required to submit a statement in Form-I describing the nature of the amount deposited into the Corporate Liquidation account, names and addresses of the stakeholders entitled to receive unclaimed dividends/ undistributed proceeds. The Liquidation Process Amendment inserts additional reporting requirements in Table B (Details of Stakeholders entitled to claim undivided dividends or undistributed proceeds) in Form-I. These insertions require detailed disclosure of tax deductions by the liquidator before depositing the amounts into the Corporate Liquidation Account or Corporate Voluntary Liquidation Account. Similar amendments have been made to Table B in Form-G of Schedule I to the VLP Regulations.

Takeaways:

The Amendments to the LP Regulations and VLP Regulations promise to improve transparency and promote accountability by incorporating additional reporting requirements and disclosures for both liquidators and prospective bidders. The insertion of eligibility criteria for prospective bidders in line with section 29A, IBC ensures that the integrity of the liquidation process is not compromised. Stricter timelines and penalties for non-compliance may result in reduced delays.

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