The Insolvency and Bankruptcy Board of India (IBBI) has notified Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 and Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.
Liquidation Process Regulations
The Regulations notified on 15th December, 2016, by Notification No. IBBI/2016-17/GN/REG005 provide the processes/procedures involved in liquidation of a corporate debtor till passing of a dissolution order (i.e., Section 33 to Section 54 of the Insolvency and Bankruptcy Code, 2016).
The Regulations deal with inter-alia the appointment and remuneration of the Liquidator, and specify the powers of the Liquidator which include reporting, maintaining registers and books of accounts, appointment of professionals, consultation with stakeholders, making an application to adjudicating bodies to direct personnel to cooperate, disclaiming onerous property, etc. no fees shall be payable for proceedings tranferred.igh Court, and It is stated that the fees of the liquidator shall be a part of the liquidation cost and shall be as decided by a committee of liquidators during the process of resolution. In every other case, the fee shall be computed as a fixed percentage of the amount realized net of other liquidation costs and of the distributed amount. The duties of the liquidator also include making public announcements, submitting preliminary reports and applying for early dissolution and submitting progress reports.
According to the new Regulations, a person who claims to be a stakeholder shall be required to prove his claim for debts owed to him. The Regulations also deal with claims by operational creditors, financial creditors, workmen and employees and other stakeholders and all other aspects relating to a claim and its verification. It is provided that the assets should ordinarily be sold through auctions. In the instance of the asset in question being perishable, the liquidator may sell it through a private sale subject to the condition that the value of the asset shall reduce considerably if not sold immediately or if the asset is being sold at higher price than the reserved price of a failed auction. The assets can be sold on a standalone basis, in a slump sale, in parcels or collectively. Finally, the manner in which with the proceeds of the liquidation may be distributed have also been stipulated.
Insolvency Resolution Process for Corporate Persons Regulations
These Regulations notified by IBBI vide Notification bearing No. IBBI/2016-17/GN/REG004 dated 30th November, 2016 set out inter-alia the eligibility criteria for appointment of insolvency professionals for a corporate insolvency resolution process of a corporate debtor. An insolvency professional who is not independent of the contract debtor, is prohibited from acting as a liquidator to the said corporate debtor. The Regulations also prohibit a resolution professional who is a partner or director of an insolvency professional entity, from representing any of the other stakeholders in the same liquidation process.
The procedure and the required contents for a public announcement and submission of proof of claims of entities across various categories such as operational creditors, financial creditors, workmen and employees as well as substantiation of such claims, costs of the proof along with the submission and verification of such claims, have been specified.
As per the Regulations, in cases where a corporate debtor has no financial debt or where all financial creditors are related parties to a corporate debtor, a committee of creditors with only operational creditors shall be set up. The Regulations also deal in detail with meetings of committee of creditors, the voting mechanism and conduct of corporate insolvency resolution, including the appointment of registered valuers, transfer of debt due to creditors and sale of assets outside the ordinary course of business.
The Regulations clearly state the costs to be taken into consideration during the insolvency resolution process such as amounts due to suppliers of essential goods and services such as electricity and water to the corporate debtor, costs incurred by the resolution professional, fees payable for engaging professional advisors, to name a few. The layout for the resolution plan along with mandatory contents of the resolution plan and the procedure for approval of such resolution plan have also been set out.