Enhancing Liquidation Processes: Proposed Amendments to IBBI Regulations to Streamline Operations and Strengthen Stakeholder Confidence

The Insolvency and Bankruptcy Board of India (IBBI) has released a Discussion Paper proposing key amendments to streamline the liquidation processes under the Insolvency and Bankruptcy Code (IBC). The amendments, addressing the Liquidation Process Regulations, 2016, and Voluntary Liquidation Process Regulations, 2017, aim to enhance transparency, reduce delays, and strengthen stakeholder confidence.

Key Proposed Amendments

Part A: Liquidation Process Regulations

1. Auction Process Reforms

   
   

   • Issues Identified: Limited participation window, delays in eligibility verification, risks of collusion, and unchecked discretion of liquidators.

     
     

   • Proposals:

     
     

     • Require bidders to submit affidavits on eligibility under Section 29A, with penalties for false declarations.

       
       

     • Maintain bidder confidentiality via an IBBI circular.

       
       

     • Mandate stakeholder consultation before rejecting the highest bid above the reserve price.

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2. Closure in Compromise or Arrangement Cases

   
   

   • Problem: Lack of explicit closure procedures under Section 230 of the Companies Act, 2013.

     
     

   • Proposal: Amend Regulation 45 to include mandatory filing of a final report with Form H for schemes under Section 230.

     
     

3. Corporate Liquidation Account

   
   

   • Challenges: Delays in operationalizing the Public Accounts of India (PAI) for fund management.

     
     

   • Proposals:

     
     

     • Allow IBBI to permanently manage the Corporate Liquidation Account outside the PAI framework.

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     • Utilize interest income for stakeholder awareness campaigns and process improvements.

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Part B: Voluntary Liquidation Process Regulations

1. Uncalled and Unpaid Capital

   
   

   • Current Provision: Regulation 33 mandates the realization of unpaid capital before distributions.

     
     

   • Issues: Delays in voluntary liquidation even for solvent companies.

   • Proposals:

     
     

     • Permit liquidation completion despite uncalled capital, prioritizing creditors’ rights over contributors.

       
       

2. Management of Corporate Voluntary Liquidation Account

   
   

   • Current Mechanism: Regulation 39 requires the deposit of unclaimed funds in a scheduled bank account pending the operationalization of the PAI framework.

     
     

   • Proposals:

     
     

     • Allow IBBI to directly manage the account permanently.

       
       

     • Expedite claim processing and use interest income for awareness campaigns.

       
       

3. Simplified Claim Withdrawal Process

   
   

   • Proposal: Streamline the claim withdrawal mechanism to improve stakeholder convenience and reduce delays.

     
     

Economic and Operational Impact

The amendments aim to:

• Streamline operations: Address delays in auctions, fund distributions, and liquidation closures.

  
  

• Enhance transparency: Introduce measures such as stakeholder consultations and mandatory filings.

  
  

• Build stakeholder trust: Simplify processes and raise awareness about unclaimed proceeds.

  
  

• Optimize fund management: Leverage interest income for public awareness and support campaigns.

  
  

Draft Regulations and Public Feedback

• Draft Amendments: Draft regulations for both Liquidation and Voluntary Liquidation processes are enclosed.

  
  

• Call for Comments: Open for public feedback until December 9, 2024, via the IBBI website.

  
  

Stakeholders are urged to provide inputs to ensure the regulations are robust, practical, and aligned with the IBC’s objective of timely resolution of distressed assets.

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Click here to Download Discussion Paper