A Brief Introduction to the Liquidation Process under the IBC, 2016

Liquidation is the Last stage of any company’s Life, once the Liquidation Process of a Company is Completed, then such company ceased to exist. In India the Liquidation Process is governed by the “Insolvency and Bankruptcy Code, 2016, and Regulation made thereunder, i.e. Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. The Prime duty of the Liquidator is to maximise the value of the stakeholder(s). The liquidation Process, shall be completed within one year form its commencement date.

Following is table explaining the brief flow of liquidation Process:

Initiation of Liquidation Process:Where the Adjudicating Authority, -before the expiry of the insolvency resolution process period, does not receive a resolution plan or(b) rejects the resolution plan under section 31 for the non-compliance of the requirements specified therein,Where the resolution professional, at any time during the corporate insolvency resolution process but before confirmation of resolution plan, intimates the Adjudicating Authority of the decision of the committee of creditors to liquidate the corporate debtor, Where the resolution plan approved by the Adjudicating Authority is contravened by the concerned corporate debtor, any person other than the corporate debtor, whose interests are prejudicially affected by such contravention, may make an application to the Adjudicating Authority for a liquidation order as referred to in sub-clauses (i), (ii), (iii) of clause (b) sub-section (1).In occurrence of any of the above circumstance, the Adjudicating Authority passes liquidation order.
Appointment of liquidatorEligibility for appointment as liquidator:An insolvency professional shall be eligible to be appointed as a liquidator if he, and every partner or director of the insolvency professional entity of which he is a partner or director, is independent of the corporate debtor.Where the Adjudicating Authority passes an order for liquidation of the corporate debtor, the resolution professional appointed for the corporate insolvency resolution process shall, subject to submission of his written consent to the Adjudicatory Authority shall act as the liquidator for the purposes of liquidation unless replaced by the Adjudicating Authority.Replacement of the Resolution ProfessionalThe Adjudicating Authority shall by order replace the resolution professional, ifthe resolution plan submitted by the resolution professional was rejected for failure to meet the requirements mentioned in sub-section (2) of section 30; or the Board recommends the replacement of a resolution professional to the Adjudicating Authority for reasons to be recorded, orThe resolution professional fails to submit written consent, In any of the abovementioned events the Adjudicating Authority may direct the Board to propose name of another insolvency professional, to be appointed as a liquidator.
Public Announcement by LiquidatorThe liquidator shall make a public announcement in Form B of Schedule II within five days from his appointment, to call upon stakeholders to submit their claims or update their claims submitted during the corporate insolvency resolution process, as on the liquidation commencement date and provide the last date for submission or updation of claims, which shall be thirty days from the liquidation commencement date.]The announcement shall be published-(a) in one English and one regional language newspaper at the location of the registered office and principal office, if any, of the corporate debtor and any other location where in the opinion of the liquidator, the corporate debtor conducts material business operations;(b) on the website, if any, of the corporate debtor; and(c) on the website, if any, designated by the Board for this purpose.
Submission of claim.A person, who claims to be a stakeholder, shall submit its claim, or update its claim submitted during the corporate insolvency resolution process, including interest, if any, on or before the last date mentioned in the public announcement, in the following forms.01.Claims by operational creditors.Form C02.Claims by financial creditors.Form D03.Claims by workmen and employeesForm E04.Claims by other stakeholdersForm G
Verification of claimsThe liquidator shall verify the claims submitted within thirty days from the last date for receipt of claims and may either admit or reject the claim, in whole or in part, as the case may be.  The liquidator may call for such other evidence or clarification as he deems fit from a claimant for substantiating the whole or part of its claim.
List of stakeholdersThe liquidator shall prepare a list of stakeholders, category-wise, on the basis of proofs of claims submitted and accepted under these Regulations, with-(a) the amounts of claim admitted, if applicable,(b) the extent to which the debts or dues are secured or unsecured, if applicable,(c) the details of the stakeholders, and(d) the proofs admitted or rejected in part, and the proofs wholly rejected.The liquidator shall file the list of stakeholders with the Adjudicating Authority within forty-five days from the last date for receipt of claims, and the filing of the list shall be announced to the public in the manner specified in Regulation 12(3).
Stakeholders’ consultation committee and its meeting.The liquidator shall constitute a consultation committee within sixty days from the liquidation commencement date, based on the list of stakeholders to advise him on the matters relating to sale of Assets the Corporate Debtor.
The liquidator shall convene a meeting of the consultation committee when he considers it necessary and shall convene a meeting of the consultation committee when a request is received from at least fifty-one percent of representatives in the consultation committee
REALISATION OF ASSETS[Sale of Assets].The liquidator may sell- (a) an asset on a standalone basis; (b) the assets in a slump sale;               (c) a set of assets collectively; (d) the assets in parcels; (e) the corporate debtor as a going concern; or (f) the business(s) of the corporate debtor as a going concern:Provided that where an asset is subject to security interest, it shall not be sold under any of the clauses (a) to (f) unless the security interest therein has been relinquished to the liquidation estate.]
Mode of sale.The liquidator shall ordinarily sell the assets of the corporate debtor through an auction in the manner specified in Schedule I.
The liquidator may sell the assets of the corporate debtor by means of private sale in the manner specified in Schedule I when-(a) the asset is perishable;(b) the asset is likely to deteriorate in value significantly if not sold immediately;(c) the asset is sold at a price higher than the reserve price of a failed auction; or(d) the prior permission of the Adjudicating Authority has been obtained for such sale:
Distribution of unsold assets.The liquidator may, with the permission of the Adjudicating Authority, distribute amongst the stakeholders, an asset that cannot be readily or advantageously sold due to its peculiar nature or other special circumstances.
The application seeking permission of the Adjudicating Authority shall-identify the asset;provide a value of the asset;detail the efforts made to sell the asset, if any; andprovide reasons for such distribution
Liquidator to realize uncalled capital or unpaid capital contribution.The liquidator shall realize any amount due from any contributory to the corporate debtor.No distribution shall be made to a contributory, unless he makes his contribution to the uncalled or unpaid capital as required in the constitutional documents of the corporatedebtor.
Proceeds of Liquidation and Distribution of ProceedsAll money to be paid in to bank account.
The liquidator shall open a bank account in the name of the corporate debtor followed by the words ‘in liquidation’, in a scheduled bank, for the receipt of all moneys due to the corporate debtor.
DistributionSubject to the provisions of section 53, the liquidator shall not commence distribution before the list of stakeholders and the asset memorandum has been filed with the Adjudicating Authority.(2) The liquidator shall distribute the proceeds from realization within 22[ninety days] from the receipt of the amount to the stakeholders.(3) The insolvency resolution process costs, if any, and the liquidation costs shall be deducted before such distribution is made.
Completion of liquidation.The liquidator shall liquidate the corporate debtor within a period of one year from the liquidation commencement date.
Provided that where the sale is attempted under sub- Regulation (1) of regulation 32A, the liquidation process may take an additional period up to ninety days.]If the liquidator fails to liquidate the corporate debtor within one year, he shall make an application to the Adjudicating Authority to continue such liquidation, along with a report explaining why the liquidation has not been completed and specifying the additional time that shall be required for liquidation.
Final report prior to dissolutionWhen the corporate debtor is liquidated, the liquidator shall make an account of the liquidation, showing how it has been conducted and how the corporate debtor’s assets have been liquidated.If the liquidation cost exceeds the estimated liquidation cost provided in the Preliminary Report, the liquidator shall explain the reasons for the same.The liquidator shall submit an application along with the final report and the compliance certificate in form H to the Adjudicating Authority for –(a) closure of the liquidation process of the corporate debtor where the corporate debtor is sold as a going concern; or(b) for the dissolution of the corporate debtor, in cases not covered under clause (a).]
Post DissolutionAfter filing the Dissolution Application, Once the hon’ble tribunal passed the Dissolution order of the CD, a copy of the order shall be forwarded to authority with which the Corporate Debtor is registered within 7 days, from the receipt of the order.

Apart of the aforesaid Liquidation Process, the Liquidator is also required prepare and file several Reports, Applications and Documents, from time to time, into the spam of Liquidation.

Following the table explaining the brief Reporting requirement of the Liquidator and their respective Timeline:

Name of the ReportContentTimeline
Preliminary reportThe liquidator shall submit a Preliminary Report to the Adjudicating Authority date, having the following details-(a) the capital structure of the corporate debtor;(b) the estimates of its assets and liabilities as on the liquidation commencement datebased on the books of the corporate debtor:within seventy five days from the liquidation commencement
Asset memorandum;The asset memorandum shall provide the following details in respect of the assets which are intended to be realized by way of sale-(a)value of the asset, (b) intended manner of sale (c) expected amount of realization from sale; and(d) any other information that may be relevant for the sale of the assetwithin seventy five days from the liquidation commencement
Progress report(s);A Progress Report shall provide all information relevant to liquidation for the quarter,including-(a) appointment, tenure of appointment and cessation of appointment of professionals;(b) a statement indicating progress in liquidation, including (i) settlement of list of stakeholders,(ii) details of any property that remain to be sold and realized,(iii) distribution made to the stakeholders, and(iv) distribution of unsold property made to the stakeholders;(a) first Progress Report within fifteen days after the end of the quarter in whichhe is appointed;(b) subsequent Progress Report(s) within fifteen days after the end of every quarterduring which he acts as liquidator; and
Sale report(s);Assets Sale report consist the following:the realized value;cost of realization, if any;the manner and mode of sale;if the value realized is less than the value in the asset memorandum, the reasons for the same;the person to whom the sale is made; andany other details of the sale.On sale of an asset
Final report prior to dissolutionaccount of the liquidation, showing how it has been conducted and how the corporate debtor’s assetshave been liquidatedAlong with the Dissolution Application on the Completion of the Liquidation.

The liquidator shall preserve a physical as well as an electronic copy of the reports and minutes referred for eight years after the dissolution of the corporate debtor.

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