In a significant move to fortify the regulatory framework of the liquidation process, the Insolvency and Bankruptcy Board of India (IBBI) has recently amended the IBBI (Liquidation Process) Regulations, 2016, effective from 12th February 2024. The amendments aim to enhance accountability, foster transparency, and instil confidence among stakeholders involved in the liquidation process. This comprehensive overhaul introduces key changes that impact various facets of the liquidation process, from asset valuation to stakeholder consultations, legal proceedings, and dissolution. The following are the key amendments and their implications on the insolvency landscape.
Key Amendments
Reserve Price Flexibility:
One of the notable changes allows the liquidator to reduce the reserve price of assets during the Corporate Insolvency Resolution Process (CIRP) by up to 25%, subject to the approval of the Stakeholders' Consultation Committee (SCC). For assets with fresh valuations during liquidation, the reserve price can be reduced by up to 10% in subsequent auctions with SCC's consent. This amendment provides flexibility to adapt to market conditions, fostering better realization of asset value.
Private Sale Procedure:
The amendments bring clarity to the private sale of assets, emphasizing prior consultation with the SCC. Notably, the option for private sale, i.e., selling an asset at a price higher than the reserve price of a failed auction, has been removed. This change ensures a more transparent and consultative approach in confirming successful buyers, enhancing stakeholder confidence in the process.
Strengthened Stakeholder Consultation:
Liquidators are now mandated to convene SCC meetings at a maximum interval of 30 days, ensuring timely decisions and effective oversight. However, the SCC has the discretion to reduce meeting frequency, with at least one meeting held per quarter. Decision-making during these meetings is based on the present and voting members, emphasizing a collaborative and informed approach.
Comprehensive Reporting Requirements:
At every SCC meeting, liquidators must present a detailed report covering various aspects, including the progress in the liquidation process, the consolidated status of legal proceedings, and cumulative costs incurred. Any cost overruns beyond initial estimates must be justified with a rationalization plan. This ensures transparency and accountability in the financial aspects of the liquidation process.
Valuation Process Enhancement:
For fresh asset valuations, liquidators are now required to facilitate meetings where registered valuers explain their methodology and reasons for significant deviations from CIRP valuations. Valuation reports must be shared with SCC members after obtaining a confidentiality undertaking, promoting transparency and understanding in the valuation process.
Legal Proceedings and Going Concern Considerations:
Before initiating or continuing any legal proceedings, liquidators must consult the SCC, presenting the economic rationale. In decisions regarding running the corporate debtor as a going concern, the liquidator must consider viability and consult the SCC. The sale of the corporate debtor as a going concern cannot be put on auction exclusively after the first auction, with a review of the marketing strategy in case of a failed auction in consultation with the SCC.
Early Dissolution and Compliance Certification:
Before applying for early dissolution, the liquidator must seek the SCC's views and recommendations, providing a detailed report in the application to the Adjudicating Authority (AA). The Compliance Certificate under Form H has been modified to capture additional details regarding the realization and distribution made during the process.
Corporate Liquidation Account Withdrawals:
Stakeholders claiming entitlement to amounts deposited in the Corporate Liquidation Account can apply for withdrawal during the period after the submission of the final report but before the corporate debtor is dissolved. The liquidator will verify the claim and request the Board to release funds for onward distribution.
Compromise or Arrangement Proposals:
The liquidator is now allowed to file the proposal of compromise or arrangement only if the Committee of Creditors made such a recommendation during the CIRP. Such proposals must not be filed after thirty days from the liquidation commencement date.
Payment Period Extension and Real Estate Project Exclusion:
The liquidator may extend the payment period of the balance sale consideration beyond ninety days after consultation with the SCC. Additionally, assets in a real estate project where the corporate debtor has given possession to an allottee shall not form a part of the liquidation estate.
Form A Modification:
The Form A for reporting consultation with stakeholders has been modified to capture meeting details, including the interval between two meetings and any dissent by the SCC, promoting a more transparent and documented stakeholder engagement process.
Conclusion:
The recent amendments to the IBBI (Liquidation Process) Regulations, 2016, mark a significant step in enhancing the accountability and transparency of the liquidation process in India. By introducing measures such as flexibility in reserve prices, strengthened stakeholder consultation, comprehensive reporting requirements, and improved valuation processes, the regulatory framework aims to inspire confidence among stakeholders. These changes underscore the commitment to ensuring a fair and efficient liquidation process that aligns with international best practices. As the insolvency landscape evolves, these amendments are poised to contribute positively to the overall efficacy and credibility of the Indian insolvency regime.