Nearly all discussions and coverages on the Insolvency and Bankruptcy Code, 2016 ("Code"), highlight the process of Resolution of Corporate persons, which is the first objective of the Code. But maximization of value of assets is a close second, and if we refer to the statistics of the matters referred under the Code, we will find that far more cases finally go for Liquidation, hence, it is important to discuss this process.


Liquidation may be initiated under Section 33 of the Code when Adjudicating Authority ("AA") either does not receive the Resolution Plan under Section 30(6) of the Code or the maximum period prescribed for corporate insolvency resolution process expires or in case where AA rejects the resolution plan under Section 31 of the Code. Further, the Committee of Creditors ("CoC") may also, with at least 66 % votes, decide to liquidate the Corporate Debtor ("CD") under Section 33(2), any time before the resolution plan is approved and the Resolution Professional intimates AA of such decision. Also, if the CD contravenes any terms of an approved resolution plan, any person whose interest is prejudicially affected by such contravention may apply for liquidation of CD.

AA while passing the order of Liquidation of CD, shall direct issuance of public announcement under Section 33(1) of the Code that the CD is in liquidation and require that such order is also sent to registering authority of CD, such as Registrar of Companies in case of companies.


As in the Corporate Insolvency Resolution Process, moratorium kicks in on passing of the order of liquidation also. No suit or legal proceedings shall be instituted by or against the CD. However, the liquidator may file such proceedings on behalf of CD, with prior approval of AA.


All powers of the Board of Directors, Key Managerial Personnel and the Partners of the CD, as the case may be, shall cease to have effect and shall vest with the Liquidator.

Furthermore, an order for liquidation shall be deemed to be notice of discharge to all employees of the CD. However, they may be retained where business of CD is proposed to be continued during the liquidation process.

All persons viz. Officers, Directors, Partners, Auditors, and Resolution Professional as well as those holding properties of CD have a duty to assist and cooperate with the Liquidator in managing the affairs of CD.

The CD is also required to add the phrase 'In Liquidation' after its name in all correspondence.


While passing the order of liquidation, AA is required to name an Insolvency Professional (IP) as Liquidator. In case any IP is already appointed as Resolution Professional for Corporate Insolvency Resolution Process, he may be continued or another IP can be appointed, subject to his consent for appointment and independence etc. There are provisions for his replacement in certain circumstances as mentioned under Section 34(4) of the Code.

Fee payable shall be decided by CoC under Regulation 39D of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, where they do not approve the resolution plan. Financial creditors are also required to advance sums required for liquidation cost over liquid assets available, which would be refunded with interest out of proceeds of liquidation. In all other cases, fees would be on percentage basis on realizations and distribution to stakeholders, as prescribed under Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 (Liquidation Regulations).


A liquidator is required to oversee the entire process of liquidation, right from the liquidation order to the dissolution of the CD. He has to take custody of all the assets, evaluate them properly and dispose them in a transparent manner keeping in mind the objectives of the Code. In the interim, he has to preserve and protect them. He has to invite claims and verify them for consolidation. Thereafter, he may admit or reject the claims. He has to defend any suit, prosecution or other legal proceedings, civil or criminal, in the name and on behalf of the CD.

A creditor may appeal to the AA, against the decision of the liquidator, accepting or rejecting the claims within fourteen days of the receipt of such decision.

Liquidator has the power to obtain any professional assistance from any person or appoint any professional, in discharge of his duties, obligations and responsibilities. Furthermore, in case any clarification is required, AA's direction can be obtained.


In Punjab National Bank vs. Kiran Shah, the liquidator of ORG Information Ltd.1 , National Company Law Appellate Tribunal (NCLAT) held that after Liquidation order is passed, CoC has no role to play and they are merely claimant. They cannot even seek replacement of liquidator in absence of any such provision in law.

A Creditors Consultation Committee is required to be formed, but the liquidator is not bound by their advice.

The liquidator has the power to consult any of the stakeholders entitled to a distribution of proceeds. Further, record of such consultation would be available to all stakeholders for the sake of transparency. The liquidator also has the power to access any information systems for the purpose of admission and proof of claims and identification of the assets relating to CD from any source, such as information utility, credit information systems regulated under any law for the time being in force, any agency of the Central, State or Local Government including any registration authorities, data bank maintained by the Insolvency and Bankruptcy Board of India.


Liquidator must prepare and submit the following as per Regulation 5 of the Liquidation Regulations:

  1. A preliminary report within 75 days of liquidation commencement date;
  2. An asset memorandum;
  3. Progress reports on quarterly basis;
  4. Sale report;
  5. Minutes of consultation with stakeholders; and
  6. The final report prior to dissolution to the AA.

Liquidator should also get accounts completed and brought up to date, wherever they are found incomplete. He is also required to maintain cash book and ledgers and various registers for assets, security and investment. Further, the liquidator is required to preserve physical and electronic copy of reports and books for 8 years after dissolution.


All assets of the CD form an estate of the assets, which is called the Liquidation Estate in relation to the CD. The liquidator holds the Liquidation Estate as a fiduciary for the benefit of all the creditors. The estate includes not only assets owned and in possession of CD, but also those not in possession. Assets listed in account books or with information utility, should be traced and taken in control. These include movable or immovable assets as well as securities and shares held in subsidiaries and joint ventures. Intangible assets like intellectual properties are also included.

However, assets of third party in possession of CD like those received in bailment and all sums due to any workmen or employee from the provident fund, the pension fund and the gratuity fund are not included.


The provisions relating to Preferential, Undervalued, Fraudulent and Extortionate transactions apply to liquidation proceedings as they apply to Corporate Insolvency Resolution process.

The relevant back period for this is two years preceding the Insolvency Commencement Date for related party and one year preceding the Insolvency Commencement Date for others.

Based on an application from the liquidator, AA may pass order restoring the property or consideration in lieu thereof given in such transaction back to CD. Undervalued and extortionate transactions could be avoided.


In Jindal Steel and Powers Ltd vs. Arun Kumar Jagatramka & Ors.2, and S C Sekaran vs. Amit Gupta & Ors.3 , NCLATheld that even in liquidation proceeding, steps are required to be taken to revive and continue the operations of the CD by protecting it from its management. Liquidator should explore compromise and arrangement with its creditors under Section 230 of the Companies Act, 2013, and on failure, try and sell the business as going concern. Death of CD by liquidation, is the last step which should be avoided.

In Maharashtra Seamless Limited vs. Padmanabhan Venkatesh & Ors.4 , the hon'ble Supreme Court held that Resolution Plan even below the Liquidation Value can be accepted by CoC as the Code prefers revival, and commercial wisdom of CoC is not to be interfered with.

A period of 90 days is allowed for compromise and arrangements from the date of the liquidation order and the same is not included in the liquidation period. Further, those not eligible to submit resolution plan, cannot be party to such compromise or arrangement also.


Distribution of assets of CD in liquidation is done as per Section 53 of the Code, popularly known as 'waterfall mechanism'. The order of priority in distribution of proceeds from liquidation estate is as follows:

  1. Liquidation costs paid in full: This includes Fee of Liquidator as well as costs incurred in engaging advisers, in protecting the assets, running the business, interest on interim finance etc.
  2. Debts of the secured creditor where he opts to relinquish security and dues of the workmen for 24 months immediately preceding commencement of liquidation shall rank equally. It is highlighted that secured creditor has the option of either enforcing his security or leaving it to the liquidator to realize and receive disbursement as per this mechanism.
  3. Wages and unpaid dues owed to employees other than workmen for the period of twelve months preceding the liquidation commencement date.
  4. Financial debts owed to unsecured creditors.
  5. Following dues shall rank equally between and among the following:
    1. any amount due to the Central Government and the State Government and other government dues for the period of two years preceding the liquidation commencement date
    2. debts owed to a secured creditor for any amount unpaid following the enforcement of security interest

Note: It is to be noted that government dues being placed on a lower priority is a big departure from prior legislations.

  1. Any other debts and dues;
  2. Preference shareholders, if any; and
  3. Equity shareholders or partners, as the case may be in the end.

The fees payable to the liquidator shall be deducted proportionately from the proceeds payable to each class of recipients and amount distributed to the relevant recipient after such deduction.


Where the assets of the CD have been completely liquidated, the liquidator shall make an application to the AA for the dissolution of such CD under Section 54 of the Code. Early dissolution can be applied for under Regulation 14 of the Liquidation Regulations any time after preliminary report is prepared, where it appears to liquidator that there are insufficient realizable assets to cover the liquidation cost and no further investigation into affairs of CD is required. Once order of dissolution is passed, same is required to be filed with authority where CD is registered.

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.