What Is The Liquidation Process Under IBC

Bankruptcy

What Is The Liquidation Process Under IBC

Registrationwala

Insolvency resolution process rarely has to the chance to go as it should be. Till now, the results of insolvency resolution have always ended up in liquidation of the company.

The process associated with the liquidation of a corporate person (a company) is quite a long road. However, its aspects are quite basic and through this article, we are going to briefly tell you about the liquidation process under IBC.

Liquidation process under IBC

The process of liquidation is as follows:

Initiation of Liquidation:  

Liquidation process is initiated due to the following circumstances: 

    1. The insolvency resolution process period has passed
    2. In order to fast track the insolvency resolution process under section 56.
    3. If at least 66 percent of Committee of Creditors have agreed to liquidate the corporate debtor.
    4. If the formulated resolution plan is somehow violated against by the corporate debtor.

Appointment of a Liquidator:

Once the liquidation process is initiated by the adjudicating authority, a liquidator has to be appointed and fees have to be paid:

    1. It is the insolvency professional who is to act as the liquidator.
    2. The liquidator would exercise pretty much the same powers as the insolvency professional over the corporate debtor.
    3. A new insolvency professional can be hired and the previous IP can be replaced as well if:
      • The resolution plan submitted by the current IP is rejected
      • It is the recommendation from the IBBI
      • The IP fails to submit a written consent
    4. The NCLT can direct the IBBI to appoint a new IP
    5. The IBBI shall propose the name of the new IP within 10 days after being directed by the NCLT.
    6. Once the IP is appointed, orders are formulated for them to act as a liquidator.
    7. The fee associated with the liquidation proceedings shall be the part of liquidation cost.

Public announcement from the liquidator:

Once the liquidator has been appointed, he has to make a public announcement of his recruitment. This announcement shall:

    1. Call upon the creditors or stakeholders to submit their claims on the liquidation proceedings.
    2. Provides the last date of the liquidation claim
    3. The announcement is to be published in two languages: One English and one regional language in a newspaper with wide circulation.
    4. The announcement has to be made on the website of a corporate debtor and any other website designated by the board if there are any.

The Liquidator will then submit a preliminary report:

 After the liquidator is appointed, then within 75 days of their appointment, they have to submit a preliminary report of the corporate debtor to the adjudicating authority. The report shall include the following:

    1. The capital structure of the corporate debtor
    2. A proper estimation of the debts and liabilities of a corporate debtor
    3. Whether the liquidator requires further inquiries regarding the promotion, formation of failure of the corporate debtor
    4. A proposed liquidation plan.

If liquidation is insufficient:  

 After the preliminary reports, if the liquidation is deemed insufficient, then the company (corporate debtor) is to be liquidated. These conditions can be:

    1. The realizable properties of the corporate debtor are insufficient to pay off the debt
    2. There are no further investigations required for the corporate debtor.

Further progress reports are to be generated: 

If there is further investigation required, then further reports are to be generated. These reports are:

    1. First and subsequent progress reports
    2. These progress reports need to have specific information.
    3. The progress report shall have a statement of the liquidator’s account
    4. If there is any material change in the property proposed to be liquidated, then its statement should be provided as well.
    5. Audited accounts of liquidator’s receipts and payments.

Maintenance of records and books:

 The liquidator has to maintain and complete the financial records of the corporate debtor. This responsibility extends to:

    1. Ledger
    2. Cash Book
    3. Bank ledger
    4. Register of Fixed Assets and inventories
    5. Register of Book debts and outstanding debts
    6. Suits register
    7. Decree Register
    8. Contributories Ledger
    9. Distributions Ledger
    10. Tenants Register
    11. Register of Claims and dividends
    12. Fee Register
    13. Suspense Register
    14. Documents Register
    15. Books Register.
    16. Register of unclaimed individuals
    17. Register of distributed properties
    18. Securities and Investment register

Appointment of an assisting professional to aid the liquidator:

 Considering the scope of liquidation, a liquidator can hire a professional to aid them. The conditions of such appointment are:

    1. Liquidation costs shall also cover the professional’s remuneration.
    2. A related party cannot be the assisting professional
    3. At the time of the appointment, the assisting professional has to disclose any personal relationship to any stakeholder.

Consultation with the stakeholders:  

The liquidator can consult with the stakeholders who are entitled to the proceedings of the liquidation procedure.

Recoveries of monies due:  

The liquidator is going to realize and recover all the assets dues to the corporate debtor in a time-bound manner

Creation of a liquidation estate: 

The liquidator has to form an estate of the assets that have been mentioned sub-section 3. This estate shall be called a liquidation estate.

Preparation of an asset memorandum:  

The liquidator then has to prepare an asset memorandum. This has to take place within 75 days of commencement of the liquidation. This memorandum shall entail:

    1. Value of asset
    2. Value of the set of assets
    3. Intended manner of sale of assets
    4. Intended mode of sale of assets
    5. Expected amount to be made after the sale
    6. Other information that might relevant to the sale of the asset.

Valuating the assets that are to be sold:

 A liquidator has to appoint at least two valuers for the assets that are intended to be sold.

    1. The registered values shall independently valuate the assets
    2. The average of the values is chosen to be the value of the assets.

Then the assets are to be sold and an asset sale report is to begin: 

Now, it is time for the assets to begin to be sold, the asset sale report shall have the following information:

    1. Realized value
    2. Cost of realization
    3. Mode and manner of sale
    4. Is the value of sale less than the vale of asset memorandum?
    5. The buyer of the asset
    6. Other details of the sale.

Realization of security interests by the secured creditor.

Distributing the unsold assets: 

After the permission of the NCLT, the liquidator can distribute those assets among the claimants/stakeholders that could not be advantageously sold due to some special circumstance or some peculiar nature.

The procedure above is a basic gist of how the liquidation process goes by. As we have already stated, this is merely skeletal of the process that happens. For more information, you can further browse Registrationwala blogs.

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