[Analysis] Key Amendments to IBBI Liquidation Process Regulations

Table of Contents

1. Conditional Filing Requirement for Proposal of Compromise or Arrangement
2. Early dissolution now requires prior discussion and consultation committee advice before implementation
3. Expanded Role of Stakeholders’ Consultation Committee
4. IBBI Introduces Amendments to Regulation 31A(6) Governing Stakeholders’ Consultation Committee Meetings
5. IBBI Introduces Regulations 6A and 6B under Stakeholders’ Consultation Committee
6. Consultation Committee Approval Required for Liquidator to Operate Corporate Debtor as Going Concern
7. Valuation Procedures and Consultation Committee Oversight in Insolvency Proceedings
8. Withdrawal of Amounts from Corporate Liquidation Account and Stakeholder Claims

The Insolvency and Bankruptcy Board of India, through Notification No. IBBI/2023-24/GN/REG112 dated 12.02.2024, has notified amendments to the IBBI (Liquidation Process) Regulations, 2016. The latest changes to Liquidation Process Rules aim to make corporate insolvency more transparent and inclusive. The updates cover filing conditions, early dissolution procedures, and greater involvement of stakeholders’ committees. These adjustments streamline processes, seek broader input, and encourage teamwork. Let’s explore the key changes and how they impact the corporate insolvency scene in India:

1. Conditional Filing Requirement for Proposal of Compromise or Arrangement

The IBBI has notified amendment in Regulation 2B i.e., Compromise or arrangement. A new proviso has been inserted. Now, the liquidator shall file the proposal of compromise or arrangement only in cases where such recommendation has been made by the committee under regulation 39BA of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.

Comments:

This approach aims to streamline the process, ensuring that proposals are thoroughly evaluated and endorsed by the committee before proceeding further. The intention is to enhance transparency and accountability in decision-making. The amendment is motivated by ensuring a structured and regulated process in corporate insolvency proceedings.

2. Early dissolution now requires prior discussion and consultation committee advice before implementation

As per the amended norms, for early dissolution under Regulation 14, the liquidator shall now consult the consultation committee and if it advises for early dissolution, he may apply, along with a detailed report incorporating the views of the consultation committee, to the Adjudicating Authority. Previously, consultation requirements were absent for early dissolution.

Comments:

This amendment recognises the importance of considering stakeholders’ inputs, potentially impacted by the early dissolution, and ensures that their interests are adequately represented and addressed.

3. Expanded Role of Stakeholders’ Consultation Committee

The IBBI has introduced an amendment to the Regulation 31A i.e., Stakeholders’ consultation committee. Now, in addition to already prescribed matters for advisory, the Stakeholder’s Consultation Committee shall also advise liquidator on matters relating to:

(a) review of marketing strategy in case of failure of sale of corporate debtor as a going concern,

(b) continuation or institution of any suits or legal proceedings by or against the corporate debtor,

(c) extension of payment of balance sale consideration beyond 90 days, to be disclosed in the auction notice.

Comments:

By expanding the advisory scope of the Stakeholders’ Consultation Committee, the IBBI acknowledges the need for comprehensive guidance to liquidators navigating complex scenarios. Overall, the rationale behind these amendments lies in fostering a collaborative and informed approach to insolvency resolution.

4. IBBI Introduces Amendments to Regulation 31A(6) Governing Stakeholders’ Consultation Committee Meetings

The IBBI has amended Regulation 31A(6) by introducing a proviso. As per the updated norms, the liquidator shall convene subsequent meetings of the Stakeholders’ consultation committee within thirty days of the previous meeting, unless the consultation committee has extended the period between such meetings.

Further, there shall be at least one meeting in each quarter.

Comments:

The amendment promotes consistent communication, and decision-making, facilitating smoother resolutions and maximizing stakeholder engagement throughout the process.

5. IBBI Introduces Regulations 6A and 6B under Stakeholders’ Consultation Committee

The IBBI has notified the addition of Sub-Regulation 6A and 6B under Regulation 31A i.e., the Stakeholders’ Consultation Committee. Regulation 31A (6A) stipulates that prior to commencing any legal actions, the liquidator is required to present the economic justification and seek counsel from the consultation committee.

Furthermore, Regulation 6B now mandates liquidators to regularly inform the consultation committee about: a) the actual liquidation cost along with reasons for exceeding the estimated cost, if any, b) the consolidated status of all the legal proceedings, and c) the progress made in the process.

Comments:

These amendments aim to foster greater efficiency, transparency, and accountability in corporate insolvency proceedings, ultimately contributing to the fair and equitable resolution of the company’s affairs.

6. Consultation Committee Approval Required for Liquidator to Operate Corporate Debtor as Going Concern

The IBBI has notified an amendment regarding Regulation 32A pertaining to the Sale of Assets and Related Provisions. Now, if the liquidator deems it feasible to continue operating the corporate debtor as a going concern, he must seek guidance from the consultation committee. Only upon receiving the committee’s advice can the liquidator proceed with managing the affairs of the corporate debtor as a going concern, subject to the extent approved.

Comments:

The amendment to Regulation 32A by the IBBI significantly impacts the decision-making process regarding the sale of assets and the continuity of operations for corporate debtors. It ensures that decisions are made collaboratively with input from relevant stakeholders, potentially leading to more informed and strategic outcomes in insolvency proceedings.

7. Valuation Procedures and Consultation Committee Oversight in Insolvency Proceedings

New Sub-Regulations 5, 6, and 7 have been inserted in Regulation 35 i.e., Valuation of assets or business intended to be sold. Where a valuation is undertaken, the liquidator shall now facilitate a meeting wherein registered valuers shall explain the methodology being adopted to arrive at a valuation to the consultation committee before the finalisation of valuation reports.

Further, the liquidator shall share the valuation reports with the members of the consultation committee after obtaining an undertaking that they shall maintain the confidentiality of such reports and shall not use these reports to cause an undue gain or undue loss to itself or any other person.

In case there is a deviation of twenty-five per cent in the valuation of an asset class, the liquidator shall facilitate a meeting wherein the registered valuers shall explain the reasons for the difference to the consultation committee.

Comments:

The recent amendments to Regulation 35 regarding the valuation of assets or business intended for sale introduce significant procedural changes. These amendments aim to enhance transparency and accountability in the valuation process, ensuring fair and accurate assessments in insolvency proceedings.

8. Withdrawal of Amounts from Corporate Liquidation Account and Stakeholder Claims

The IBBI has introduced various new Sub-Regulations under Regulation 46 i.e., Corporate Liquidation Account. The procedure for the withdrawal of amounts from the Corporate Liquidation Account has been notified.

Prior to the dissolution of the corporate entity, stakeholders asserting entitlement to funds deposited into the Corporate Liquidation Account can apply for withdrawal using Form-I directly to the liquidator.

Upon receipt of such requests, the liquidator is mandated to verify the claims and subsequently request the Board for the release of the funds for distribution. Upon receiving the liquidator’s request, the Board may release the funds to the liquidator for distribution. Following the distribution to the stakeholders, the liquidator is required to inform the Adjudicating Authority of the disbursal.

After dissolution, stakeholders still claiming entitlement to funds from the Corporate Liquidation Account may apply to the Board directly using Form-I for a withdrawal order. In cases where persons other than stakeholders claim entitlement to the funds, they must provide evidence to satisfy either the liquidator or the Board, as appropriate, of their entitlement.

Comments:

This amendment significantly streamlines the process for the withdrawal of funds by stakeholders. This streamlining enables stakeholders to directly apply to the liquidator for withdrawal using Form-I before the dissolution of the corporate entity.

These changes enhance transparency and efficiency in the distribution of funds from the Corporate Liquidation Account, benefiting both stakeholders and the insolvency resolution process as a whole.