The idea is to curtail the unwarranted time spent on various activities so as to ensure early completion of voluntary liquidation process | Photo Credit: designer491
Introduces compliance certificate; experts says step in the right direction for ease of doing business and ease of exiting business
The Insolvency and Bankruptcy Board of India (IBBI) has made several changes to its voluntary liquidation regulations so as to fast track the process, thereby providing quicker exits for corporate persons, release idle resources faster and put them into productive uses.
The changes include crunching the timelines in preparation of list of stakeholders; distribution of proceeds from realisation and submission of final report to the adjudicating authority. The idea is to curtail the unwarranted time spent on various activities so as to ensure early completion of voluntary liquidation process.
A voluntary liquidation — when the shareholders of a solvent company decide to put it into liquidation and there are enough assets to pay all the debts — occurs when the company has no realistic prospects to remain a going concern. It is forced by the entity itself through its board of directors.
The process of liquidation was sought to be completed in 12 months under the unamended Regulation 37. The latest amendment provides that in cases where no claims are received from any creditor(s), final report may be provided in 90 days from the date of commencement of the process. Where claims are received from creditor(s), the period for submission may be provided as 270 days from the liquidation commencement date.
Besides, the IBBI has also introduced a compliance certificate (format specified under a new Form H) similar to the one provided under corporate insolvency resolution process (CIRP) regulations and liquidation regulations. It would contain a summary of the entire voluntary liquidation process.
Now, a liquidator is needed to distribute the proceeds from realisation within 30 days to the stakeholders as opposed to the earlier norm of six months from the receipt of the amount. In cases where no claim is received, the liquidator is now required to prepare the list of stakeholders within 15 days from the last date for receipt of claims.
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The unamended regulation only provided for preparation of the list of stakeholders within 45 days, said Meghna Mishra, Senior Partner — Karanjawala & Co. The latest amendments will help streamline and expedite the process, she added.
Sushmita Gandhi, Partner, IndusLaw, said, “While the compressed process timelines would streamline and speed up the overall conclusion of voluntary liquidation process and ensure conservation of asset value, it is the introduction of compliance certificate that will hopefully act as a catalyst in ensuring consistency across benches and save precious judicial time.”
Kumar Saurabh Singh, Partner, Khaitan & Co, said, “Considering the delays involved, these amendments can help the exit process for entities which do not have creditor liabilities and are looking to exit their business seamlessly.” Overall, a step in the right direction for ease of doing business and ease of exiting business, he added.
While Pritika Kumar, Founder — Cornellia Chambers, said the latest changes have streamlined and fast tracked voluntary liquidation process under the principal regulations from 2017, Sagar Manju, Partner, Saraf & Partner, said the amendment will have wider implications in accelerating the process. This is in line with the ‘time value’ principle under the IBC, Manju said.
Published on April 06, 2022