The following presentation is regarding the Liquidation Process to be followed under the IBC, 2016.

1. liquidation process under the
insolvency and Bankruptcy code, 2016
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2. LIQUIDATION ORDER
Liquidation order will be passed if:
v CIRP ends
v Plan not submitted to NCLT
v Plan not approved by COC
v Decided by CoC
v Plan not properly implemented
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3. CONSEQUENCES OF LIQUIDATION ORDER
Following are the consequences of liquidation order:
v Public Announcement stating that the Corporate Debtor is in
Liquidation
v All employees and workmen get discharged except where the
business of the Corporate Debtor is continued by the
Liquidator.
v No suit or other legal proceeding shall be instituted by or against
the CD.
Provided that Liquidator can, with prior permission of NCLT,
institute a suit or legal proceeding on behalf of the Corporate
Debtor.
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4. LIQUIDATION STEPS
Step I - Appointment of liquidator and consequences
Step II - Announcement of Liquidation and Calling for Submission of Claims
and Appointment of Valuer’s
Step III - A. Verification and Acceptance of Claims
B. Preparation of Asset Memorandum and Other Reports
Step IV - Formation of liquidation estate (With Inclusions and Exclusions)
Step V - Sale of Assets
Step VI - Distribution of Assets as per Waterfall
Step VII - Dissolution of Corporate Debtor (to be completed within 2 years)
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5. STEP I- APPOINTMENT OF LIQUIDATOR AND CONSEQUENCES
v Section 34 of the IBC provides for appointment of Liquidator. The existing
RP shall be appointed as the liquidator with such fees as provided in
Regulation 4 of the IBBI (Liquidation Process ) Regulation, 2016. RP’s other
than the existing RP can also be appointed as liquidator’s under certain
circumstances.
v On Passing of the liquidation Order, all Powers of the BOD & KMP of the CD
shall cease and vest in the Liquidator
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6. APPOINTMENT OF LIQUIDATOR AND CONSEQUENCES-CONT.
Powers and Duties of Liquidator
The IBC 2016 has provided in Section 35 for certain powers and duties to be exercised by the
liquidator subject to the directions of AA. Following are some major power/duties of liquidator
v To carry business (if required) of CD for its beneficial liquidation
v To institute or defend any suit, prosecution or other legal proceedings
v To obtain any professional assistance from any person or appoint any professional, in
discharge of his duties, obligations and responsibilities
v To take all such actions, steps, sign or execute documents etc as may be necessary for
liquidation, distribution of assets and in discharge of his duties and obligations and
functions as liquidator
v To form Liquidation Estate of assets and properties of CD and to hold such liquidation
estate as fiduciary for benefits of all creditors
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7. STEP II-PUBLIC ANNOUNCEMENT OF LIQUIDATION AND CALLING
FOR CLAIMS AND APPOINTMENT OF VALUER’S
v As soon as Adjudicating Authority passes the liquidation order, liquidator is required to
make public announcement within 5 days of liquidation order in Form B of Schedule II of
IBBI CIRP inviting claims from all creditors.
v Liquidator is required to receive or collate the claims of creditors within a period of 30
Days from the date of commencement of the liquidation process (date of order).
v It may be noted that Creditors have to file Claim within 30 Days of Public Announcement.
Post 30 Days Liquidator has no powers to admit the claim.
v Liquidator is required to appoint 2 Valuer's to value the assets of corporate debtor. Report
should be received within 75 days of the Liquidation Order to enable Liquidator to file asset
memorandum with AA.
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8. STEP III- A. VERIFICATION AND ACCEPTANCE OF CLAIMS
v Liquidator shall verify the claims within a period of 30 days of last date and submission of
claims and communicate his decision of admitting/rejecting the claim in 7 days of
verification of claim.
v It may be noted that Claims have to be filed within 30 days of the commencement of
liquidation process (date of order) AND the Liquidator is required to verify the claims
within 30 days of last date of submission of claims .The Liquidator is required to
communicate his decision of admitting/rejecting the claim within 7 days of last date of
admission/rejection of claims
v It may be further noted that liquidator has no power to admit the claim of Financial Creditor,
Operational Creditor, Employees and other creditors beyond 30 days of public
announcement and the only remedy available to the creditor would be to file an appeal to
adjudicating authority within 14 days of receipt of such decision of rejection by the
liquidator u/s 42 of IBC 2016. Post 14 days Adjudicating Authority may not entertain such
appeal.
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9. STEP III B- PREPARATION OF ASSET MEMORANDUM AND OTHER
REPORTS
Liquidator has to prepare and submit an asset memorandum within 75 days from
liquidation order. The asset memorandum shall contain value of the assets as per
valuation report; intended manner of sale; expected amount of realization and relevant
information for sale of assets.
Further Liquidator is required to submit following reports to Adjudicating Authority from
time to time
v Preliminary Report within 75 days from the liquidation commencement date giving
capital structure, estimates of assets & liabilities as per books and the proposed plan
of action for carrying out the liquidation including the timeline during which he
proposes to carry out and the estimated liquidation cost.
v First Progress report and Subsequent Progress reports on quarterly basis giving
settled list of stakeholders, details of properties that remain to be sold and realized,
distribution made to the stakeholders, details of fees and remuneration payable to
liquidators, expenses of liquidator, details of material litigation.
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10. STEP III B- PREPARATION OF ASSET MEMORANDUM AND OTHER
REPORTS – CONT.
v Sale Reports
v Annual Status Reports
v Minutes of Consultation with Stakeholders
v Final Report Prior to Dissolution
Further it may be noted that Liquidator is required to enclose audited accounts of the
liquidators receipts and payments for every financial year to AA within 15 days of end of
financial year along with progress report of 4th Quarter.
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11. STEP IV - FORMATION OF LIQUIDATION ESTATE (WITH
INCLUSIONS AND EXCLUSIONS)
I N C L U S I O N S
v Assets over which CD has ownership rights.
v Movable/Immovable tangible assets
v Intangible assets
v Assets in respect of which security interest
has been relinquished by a secured creditor
u/s 52 of IBC 2016.
v Assets subject to the determination of
ownership by the court or authority
v Any assets or their value recovered through
proceedings for avoidance of transactions
v All proceeds of liquidation as and when
they are realized
E X C L U S I O N S
v Assets in possession of CD, but owned by a
3rd party – assets held in trust, bailment
contracts, contracts for ‘use’ of assets and
not transfer of title, etc.
v Assets in security collateral held by financial
services providers and are subject to netting
and set-off in multi-lateral trading or
clearing transactions
v Personal assets of any shareholder or
partner of a CD, provided the assets are not
held under avoidance transactions
v Assets of any Indian or foreign subsidiary of
CD
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12. SECURED CREDITORS IN LIQUIDATION PROCEEDINGS –
SECTION 52 OF IBC 2016.
The secured creditor in liquidation proceedings may:
I, Relinquish its security interest to the liquidation estate and receive proceeds from
the sale of assets as per section 53
II. Realize its security interest in the following manner:
v Inform the liquidator of its security interest and identify assets subject to such
security interest
v Liquidator to verify security interest and permit the secured creditor to realize such
security interest, the existence of which is proved by the records of information
utility or such other means as specified by the board
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13. SECURED CREDITORS IN LIQUIDATION PROCEEDINGS –
SECTION 52 OF IBC 2016 – CONT.
v Secured creditor can enforce, settle, compromise or deal with secured assets in
accordance with law (including SARFAESI or execution proceedings in DRT etc.). In
case secured creditor faces resistance from CD or any person connected therewith in
taking possession, selling or disposing off assets, the creditor can approach NCLT for
directions to facilitate the enforcement/sale etc.
v Amount of Insolvency Resolution cost due from the secured creditor to be deduced
from sale proceeds generated from sale of secured assets
v Where money recovered in excess of dues, the secured creditor shall account to
liquidator and tender to him the excess funds
v Where money received is less than the debt due towards the secured creditor, the
secured creditor to approach liquidator for recovery of balance dues in terms of
waterfall mechanism as set out in Section 5
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14. STEP V – SALE OF ASSETS
The Liquidator may sell an asset on a standalone basis or sell
v In slump sell
v set of assets collectively or
v in parcels
The liquidator shall ordinarily sell the asset through an auction, however under following
circumstances he may sell the assets by means of private sale in manner as specified in Schedule I
v Asset is perishable
v Asset is likely to deteriorate in value significantly if not sold immediately
v Asset is sold at a price higher than reserve price of a failed auction
v Prior permission of AA has been obtained
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15. STEP VI- DISTRIBUTION OF ASSETS AS PER WATERFALL
v Insolvency resolution process and liquidation cost
v Secured Creditors which are relinquished u/s 52 of IBC 2016 and Workmen dues (up to 24
Months)
v Other Employees Dues (up to 12 Months)
v Financial Debts of Unsecured Creditors
v Government Dues (Up to 2 years) and unpaid Secured Creditors following the enforcement
of security interest u/s 52 of IBC 2016.
v Any remaining Debts and Dues
v Preference Shareholders if any
v Equity Shareholders or partners as the case may be
Other Important Point to note is :
v Subject to section 53, liquidator shall not commence distribution before the list of
stakeholders and asset memorandum ha been filed with AA
v Liquidator shall distribute proceeds from realization within six months from receipt of
amount from stakeholders
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16. STEP VI- DISTRIBUTION OF ASSETS AS PER
WATERFALL CONTD.
Secured creditor has the option to:
• Enforce and realise the security outside the Code or
• Relinquish its security interest and receive proceeds as defined in the
priority of claim
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17. STEP VII – DISSOLUTION OF CORPORATE
DEBTOR
v The liquidator shall liquidate the corporate debtor within a period of two
years. In case he fails to do so, he shall make an application to AA for extension
along with justification of extension and additional time period required for
liquidation.
v When the Corporate Debtor is liquidated, the liquidator shall submit his final
report showing how liquidation has been conducted and how assets of
liquidator has been liquidated.
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18. REMUNERATION OF LIQUIDATOR
• Remuneration of liquidator shall be determined by COC
• If COC does not determine the remuneration, NCLT will determine the same as
per regulation 4 (3) of IBBI (liquidation process) Regl 2016.
• It will be based on a scale of value realized and distributed by the liquidator.
• Scale is highest for first six months and reduces for 6 to 12 months and further
reduces for 12 to 24 months and thereafter.
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19. PREPARED AND PRESENTED BY,
MR. ALOK SAKSENA.
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