IBBI notifies amendments to liquidation process regulations, 2016: enhanced creditor oversight, expedited timelines and greater accountability in liquidation proceedings

Key Highlights of the Amendment Regulations: 

1. Streamlined Valuation Framework for MSMEs: For corporate debtors classified as MSMEs, the liquidator is now required to appoint only one registered valuer for each asset class, unless, after consultation with the committee, reasons are recorded in writing for appointing two valuers. This amendment is aimed at reducing costs and expediting liquidation proceedings involving MSMEs.

2. Strengthened Role of the Committee of Creditors During Liquidation: A significant structural change has been introduced by providing for the continuation of the Committee of Creditors (CoC) during liquidation. The CoC is empowered to approve key decisions relating to appointment of professionals, liquidator’s fees, liquidation costs, valuation, litigation strategy, asset sales, assignment of assets, and other material aspects of the liquidation process. Several actions, including private sales and important asset disposition decisions, now require approval by at least sixty-six percent voting share of the CoC.

3. Revised Framework for Appointment, Replacement and Remuneration of Liquidators: The amendments require the CoC to recommend the name of a liquidator to the Adjudicating Authority prior to the passing of a liquidation order. A mechanism has also been introduced enabling replacement of a liquidator by a sixty-six percent vote of the CoC. Further, detailed provisions have been introduced governing liquidation fees where the CoC has not fixed the liquidator’s remuneration.

4. Enhanced Transparency in Compromise, Arrangements and Asset Sales: The Liquidation Regulations now provide that a compromise or arrangement under section 230 of the Companies Act, 2013 may be pursued only where the requisite creditor approval has been obtained and the realizable value to creditors exceeds the liquidation value. The amendments also clarify that assets and actionable claims cannot be sold to persons ineligible under section 29A of the Code and impose additional safeguards for private sales and sales to related parties.

5. Facilitation of Transfer of Guarantor Assets: A framework has been introduced to facilitate transfer of assets of corporate guarantors in liquidation pursuant to section 28A of the Code. The amendments require coordination between the liquidator of the guarantor and the resolution professional of the principal corporate debtor and mandate appropriate disclosures regarding such transfers in progress reports and asset memoranda.

6. Expedited Claims and Distribution Process: The amendments rationalize timelines across various stages of liquidation. Creditors are generally required to submit claims within fourteen days of the liquidation commencement date, and liquidators must verify claims within seven days of receipt and communicate decisions within seven days thereafter. Timelines for preparation of the stakeholder list and distribution of proceeds have also been significantly reduced, promoting faster recoveries for stakeholders.

7. Reduction in Overall Liquidation Timelines: The model timeline for completion of liquidation has been reduced from one year to one hundred and eighty days. The amendments also prescribe tighter timelines for valuation, verification of claims, distribution of proceeds, and other key milestones. These measures reflect the IBBI’s emphasis on time-bound completion of liquidation proceedings and value preservation.

8. Improved Reporting and Stakeholder Participation: Liquidators are now required to place progress reports before the CoC and provide comprehensive updates on liquidation costs, pending litigation, asset realization efforts, stakeholder distributions and unsold assets. Stakeholders are also required to continuously update their claims whenever recoveries are received from any source after the insolvency commencement date. These changes are intended to improve transparency, accountability and stakeholder awareness throughout the liquidation process.