Norm on contribution to liquidation costs by financial creditors to apply only for liquidation processes that commenced post July 25, 2019
Insolvency regulator IBBI has now made it clear that the major changes effected to the liquidation process regulations in the year 2019 would only have a prospective effect. It has now brought in amendments to clarify that changes in regulations related to contribution to liquidation costs by financial creditors or financial institutions will apply only on those liquidation processes that commenced after July 25, 2019, when the liquidation process regulations were last amended on this front.
A similar dispensation will apply for regulatory changes effected on presumption of security interest and stakeholders consultation committee. The changes on these two fronts will also apply only for those liquidation processes that commenced after July 25, 2019, the IBBI has said.
To clarify grey areas
Commenting on the latest IBBI move, Sushmita Gandhi, Partner, IndusLaw, said that the latest IBBI amendment has been brought in primarily to clarify the aspect of grey area on retrospective applicability of the IBBI (Liquidation Process) (Amendment) Regulations, 2019 by which the Liquidation Regulations were revamped with major changes relating to contribution to the liquidation costs, formation of stakeholder committee, etc.
“This amendment clears the air by clarifying that the 2019 amendments will apply prospectively i.e., to the liquidation process commencing on or after the commencement of 2019 amendments”, she added
Ruby Singh Ahuja, Senior Partner, Karanjawala & Co, said that the forced payment inserted by way of these amendments (in the year 2019) as regards financial creditors has been a topic of controversy for a while now, as the demand for this contribution is beyond the scope of IBC code.
Shivek Sharma, Associate, Pioneer Legal, said that the 2019 Regulations introduced the requirement of inter alia (i) contribution by financial creditors towards the liquidation cost; (ii) constitution of a Stakeholders’ Consultation Committee having representation from secured financial creditors, unsecured financial creditors, workmen and employees, government, other operational creditors, and shareholder/partners to advice the liquidator on matters relating to sale.
The latest IBBI move provides a clarificatory language that the aforementioned requirements will be applicable to liquidation processes commencing on or after the date of the commencement of the 2019 Regulations i.e. July 25,2019, he said..
Published on April 30, 2022