Legal experts on changes to the liquidation process regulations

The Insolvency and Bankruptcy Board of India has made significant changes to the liquidation process with the aim of reducing the time taken for such proceedings.

IBBI is the agency responsible for implementing the Insolvency and Bankruptcy Act, 2016, and establishes regulations for the insolvency resolution process.

The amendments introduced by the Board of Directors are intended to simplify the liquidation process by reducing delays and helping to achieve better value for the entity being liquidated.

The main changes include:

CoC acts as an SCC for the first 60 days

The Creditors Committee is now allowed to act as a stakeholder advisory committee for the first 60 days of liquidation.

Once the claims are decided and accepted, the stakeholder committee will be reconstituted based on the accepted claim for liquidation proceedings.

Earlier, the Saudi Cable Company was appointed within 60 days of the start of the liquidation during which the liquidator made important decisions without guidance from the Saudi Cable Company.

The functions of the SCC have also been increased under the new amendments, raising it to a position closer to that of the Creditors Committee.

Piyush Mishra, partner at Luthra and Luthra Law Firms, says the amendment brings the liquidation process along similar lines to those of the insolvency resolution process and democratizes it.

Mishra said a more transparent and consultative process had been achieved.

The claim is aggregated through CIRP to be considered as a claim during liquidation

According to the new amendments, if the stakeholder fails to file his claim, the claim he made during the insolvency settlement process will be considered his claim during the liquidation process as well.

Ashwin Misra, partner at Trilegal, said the change will help reduce duplication of an operation that has already been performed.

Mishra noted that liquidation is an extension of the corporate bankruptcy settlement process. He said there was no reason why claims made during the CIRP should not be taken into account at a later stage.

SCC can now easily replace the filter

The amendments also include changes in the process of replacing the liquidator with liquidation procedures.

After adjustments, the liquidator can be replaced with 66% of the stakeholder advisory committee votes.

Mishra said the new framework addresses a significant difficulty from the previous regime and is a positive regulatory matter.

Tighter timelines for auction and settlement

Several modifications have been made to ensure that the liquidation is completed within a specific and orderly time frame.

They include the following:

  • Timelines for the auction process are provided under the new regulations. Auction must be completed within 45 days of the start of liquidation. Bidder can establish eligibility within 14 days of public notice and earnest money is deposited at least two days prior to auction.

  • Timetables are also provided for back-to-back auctions. Successive auction notification must be issued within 15 days of the last failed auction.

  • The settlement request must now be submitted within 30 days of the commencement of liquidation against the 90 days initially granted.

Maisara said these changes will help complete the liquidation process in a timely manner.

Keep records after filtering

The regulations regarding record retention have also undergone changes. According to the new amendments, documents must actually be kept for three years instead of the previous requirement of eight years. This brings filter organization into line with the CIRP system.

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