The Insolvency and Bankruptcy Board of India (IBBI) has advised that all key items impacting liquidation be reviewed with the stakeholders' consultation committee in order to increase openness in the process.
The proposed revisions to the Liquidation Regulations were made in response to a need to improve the liquidator's responsibility by requiring required talks with the stakeholders' committee on a variety of subjects. The appointment of professionals and the sale of assets, including the fixing of a reserve price, are two examples. According to the IBBI, this would increase stakeholder confidence and engagement in the process, as well as lead to more effective supervision and monitoring and improved process outcomes. IBBI has also urged that the liquidator make it easier for stakeholders in each class to designate a representative for inclusion in the consultation committee while sticking to the voting concept of majority value of claims of those present and voting.
The proposed modifications to the SCC's constitution are just intended to guarantee that all parties are fairly represented in the process. It also saves time by avoiding legal objections based on bias and arbitrariness, according to Raj Bhalla, a partner at law firm MV Kini.
It is also proposed that the liquidator not hire a professional or an agent to sell assets for a commission or a success fee. In cooperation with the stakeholder’s consultation group, the liquidator would need to develop a marketing strategy for asset sales. IBBI stated, "The appointment of a commission agent to perform the duties of the liquidator is contrary to the legislative intent."
The insolvency authority also stated that in a few liquidations, inappropriate pre-bid qualification restrictions such as an extravagant earnest money deposit had been seen (EMD). In some circumstances, a non-refundable participation fee was even specified for participation. In other circumstances, the non-refundable participation fee for participating in the auction was explicitly mentioned.
To remedy this, the IBBI has recommended amending the regulations to include a section stating that the liquidator shall not ask potential bidders to pay any fee or non-refundable deposit, and shall not require earnest money deposits in excess of 10% of the asset's reserve price.
IBBI has also attempted to address the issue of some liquidators arbitrarily rejecting the best bid. It has been stated that the liquidator must explain why the highest bid was rejected to the highest bidder and note this in the quarterly progress report.
It is also proposed that if secured creditors owning 60% of the secured debt opt to surrender or realise the security interest, their decision will be binding on all other charge holders on an equal basis.
“For a long time, most professionals and the Adjudicating Authority have observed that the basic principle of the Code, maximising the value of the Corporate Debtor's assets, has been overlooked in the Liquidation Process,” Bhalla continued.