The Insolvency and Bankruptcy Board of India (“IBBI”) vide its notification dated 31 March 2017 has issued the Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017 (“the Regulation”) which shall come into force on 1 April 2017. These regulations apply to the voluntary liquidation of Corporate persons under Chapter V of Part II of the Insolvency and Bankruptcy Code, 2016 (“Code”). Corporate person means a Company as defined under Companies Act, 2013, Limited Liability Partnership or any other person incorporated with limited liability under any law for the time being in force.
The key highlights of the regulation are:
A. Commencement of Liquidation:
• A declaration signed by majority of designated partners / governing body in case of body corporate, verified by an affidavit shall be executed
• The declaration shall be accompanied by audited financial statements and record of business operations of the corporate person for the previous two years or for the period since its incorporation, whichever is later and report of valuation of the assets of the corporate person, if any prepared by a registered valuer
• Within four weeks from the date of execution of the aforesaid declaration, a resolution shall be passed by a special majority of the partners or contributories, as the case may be, of the corporate person requiring the corporate person to be liquidated and appointing an insolvency professional to act as the liquidator
• Where a corporate person owes any debt to any person, creditors representing two-thirds in value of the debt of the corporate person shall approve the resolution passed by the partners / contributories within seven days of such resolution
• The aforesaid resolution is required to be submitted with Registrar of Companies and IBBI within 7 days
• The corporate person shall from the liquidation commencement date cease to carry on its business except as far as required for the beneficial winding up of its business
B. Appointment and Remuneration of Liquidator:
• The resolution passed by the partners or contributories, as the case may be, shall contain the terms and conditions of the appointment of the liquidator, including the remuneration payable to him
• An insolvency professional shall be eligible to be appointed as a liquidator if he, and every partner or director of the insolvency professional entity of which he is a partner or director is independent of the corporate person
• A person shall be considered independent of the corporate person, if he satisfies the conditions as specified in the explanation section of Regulation 6(1)
• The remuneration payable to the liquidator shall form part of the liquidation cost
C. Powers and Functions of the Liquidator:
• The liquidator shall prepare and submit reports as prescribed in the manner specified under these Regulations
• The reports shall be made available to the stakeholders in either electronic or physical form, subject to the provisions of regulation 8(2)
• The liquidator shall submit a Preliminary Report to the corporate person within 45 days from the liquidation commencement date, detailing matters specified in Regulation 9
• A liquidator may engage professionals to assist him in the discharge of his duties, obligations and functions for a reasonable remuneration and such remuneration shall form part of the liquidation cost and such professional shall not be his relative or related party the corporate person or has served as an auditor to the corporate person during the 5 years preceding the liquidation commencement date
• The liquidator shall make a public announcement in Form A of Schedule I within 5 days from his appointment calling upon stakeholders to submit their claims as on the liquidation commencement date within 30 days from the liquidation commencement date
D. Claims:
• A person, who claims to be a stakeholder, shall prove his claim for debt or dues to him, including interest, if any, as on the liquidation commencement date
• Following person can claim their claims as per the form prescribed in schedule I of the regulation:
operational creditor of the corporate person, other than a workman or employee in Form B
financial creditor of the corporate person in Form C
workman or an employee of the corporate person in Form D
stakeholder other than aforesaid in Form F
E. Realization of Assets:
• The liquidator may value and sell the assets of the corporate person in the manner and mode approved by the corporate person in compliance with provisions
• The liquidator shall endeavour to recover and realize all assets of and dues to the corporate person in a time bound manner for maximization of value for the stakeholders
• The liquidator shall realize any amount due from any contributory to the corporate person. He shall realize any amount due from any contributory to the corporate person, notwithstanding any charge or encumbrance on the uncalled capital
F. Proceeds of Liquidation and Distribution of Proceeds:
• Bank account in the name of the corporate person followed by the words ‘in voluntary liquidation’, in a scheduled bank, shall be opened by the liquidator for the receipt of all moneys due to the corporate person
• The money in the credit of the bank account shall be distributed in the order of priority such as liquidation cost, workmen dues and secured creditor, employees, financial debt to unsecured creditor, amount due to the Central Government, State Government, preference shareholders and then to the equity shareholders in accordance with Section 53(1) of the code;
• All payments out of the account by the liquidator above 5,000 rupees shall be made by cheques drawn or online banking transactions against the bank account
• The liquidator shall distribute the proceeds from realization within 6 months from the receipt of the amount to the stakeholders
• The liquidator may, with the approval of the corporate person, distribute amongst the stakeholders, an asset that cannot be readily or advantageously sold due to its peculiar nature or other special circumstances
• The liquidator shall endeavour to complete the liquidation process of the corporate person within twelve months from the liquidation commencement date
• In the event of the liquidation process continuing for more than twelve months, the liquidator shall hold a meeting of the contributories of the corporate person within 15 days from the end of the twelve months from the liquidation commencement date, and at the end every succeeding twelve months till dissolution of the corporate person and shall present an annual status Report indicating progress in liquidation along with audited accounts of liquidation
• On completion of liquidation process, the liquidator shall prepare the Final Report and submit with Registrar of Companies and IBBI and National Company Law Tribunal for its order
The aforesaid process are similar to the proceedings governed under Companies Act, 1956 with certain modifications with respect to qualification of liquidator, change in regulatory authority, additional responsibilities for liquidator such as preparing preliminary report and publication for claims and verification of the same etc. and responsibilities on creditors to prove their debts to the liquidator.
Thus, through this notification, the voluntary winding up proceedings of companies which was governed under Companies Act shall stand transferred to IBBI. Further, corresponding Section 59 of the Code for voluntary winding up of corporate person has also been notified.
To read the full text of the Regulation, please click on the below link:
http://www.ibbi.gov.in/IBBI%20(Voluntary%20Liquidation).pdf