IBBI (Voluntary Liquidation Process) (Amendment) Regulations, 2024

INTRODUCTION

The Insolvency and Bankruptcy Board of India (“IBBI”), in exercise of powers conferred under Section 196(1)(t) read with Section 240 of the Insolvency and Bankruptcy Code, 2016 (“IBC”), has issued the IBBI (Voluntary Liquidation Process) (Amendment) Regulations, 2024 (“Amendment Regulations”) vide Notification No. IBBI/2023-24/GN/REG109 dated January 31, 2024ⁱ. The Amendment Regulations further amends the IBBI (Voluntary Liquidation Process) Regulations, 2017 (“Principal Regulations”) to provide for the requirement to disclosing pending litigations and submission of status reports along with detailing the process for claim of any amount lying in the corporate voluntary liquidation account.

The following are the key highlights of the Amendment Regulations:

1. Initiation of Liquidation
   
   Regulation 3(1)(a)(ii) of the Principal Regulation provides for the conditions which shall be fulfilled for the initiation of liquidation proceedings of a corporate person.
   
   

   Previously, the conditions prescribed that the individuals shall declare vide an affidavit that they have made complete inquiry into the corporate person’s affairs and have inferred that the corporate person either has no debts or would be able to pay its debts in full in the form of proceeds of assets to be sold in liquidation and that the corporate person is not being liquidated to defraud any person

   
   However, vide the Amendment Regulations, the individuals are also required to declare that the corporate person has made sufficient provisions for meeting the obligations arising out of any pending litigations. Furthermore, Regulation 3(1)(b)(iii) of the Amendment Regulations requires that such declaration shall also be accompanied by disclosures pertaining to the pending proceedings in respect of the corporate person.


2. Reporting



Regulation 8(1)(b) of the Principal Regulations previously required the liquidator to prepare and submit an annual status report on the progress of the liquidation. However, vide the Amendment Regulation, the frequency of the status report has been deleted and shall not be annual.



3. Completion of liquidation



Regulation 37(2) of the Principal Regulations previously provided that if the liquidation process continues for more than 12 (twelve) months, the liquidator shall hold a meeting of the corporate person’s contributories and present the status report of the liquidation process.




However, with the Amendment Regulations, the timeline has been amended to provide that if the liquidation process continues beyond 270 (two hundred and seventy) days from the liquidation commencement date where creditors have approved the resolution and 90 (ninety) days from the liquidation commencement date in other cases then, the liquidator shall:



1. hold a meeting of the contributories of the corporate person within 15 (fifteen) days from the end of 270 (two hundred and seventy) days or 90 (ninety) days, as the case maybe and thereafter, periodically, at the end of every such succeeding period till submission of application for dissolution of the corporate person; and


2. present a status report highlighting the liquidation progress and the reasons for non-completion of the process within the stipulated and the required additional time period for completion of the process.



The Amendment Regulations has further inserted Regulation 37(4) which provides that the liquidator shall file the status report with IBBI within 7 (seven) days of the meeting of contributories.



4. Corporate Voluntary Liquidation Account



Regulation 39(7) of the Principal Regulations provided that stakeholders claiming any amount deposited in the corporate voluntary liquidation account may apply to IBBI in Form-I for withdrawal of such amount. Further, if any person other than stakeholder claims such amount, he shall submit necessary evidence to satisfy IBBI.




The Amendment Regulations has however provided a detailed procedure by insertion of sub-regulation 7A to 7D for claiming any amount in the corporate voluntary liquidation account in the following manner:

1. The stakeholder may apply to the liquidator in Form-I for withdrawal of the amount, prior to dissolution of the corporate person.


2. On receipt of such application, the liquidator shall after verification, request IBBI to release the amount to such person for onward distribution.


3. The IBBI on receipt of the request may release the amount to the liquidator who, shall thereafter distribute the same to the stakeholder and intimate the adjudicating authority of such distribution


4. Post dissolution, a stakeholder claiming to be entitled to any amount deposited in the corporate voluntary liquidation account may apply to IBBI in Form-I for withdrawal of amount.


5. If a person other than the stakeholder claims to be entitled to any amount deposited in the corporate voluntary liquidation account, such person shall submit evidence supporting such claim, to the liquidator or IBBI.

The Amendment Regulations outline the requirements for disclosing pending litigations and submitting status reports. It also establishes the procedure for claim of any amount lying in the corporate voluntary liquidation account, before and after dissolution of the corporate person, by a stakeholder and by any other person. Thus, the amendments introduced vide the Amendment Regulations emphasize that liquidation can be proceeded even when a litigation is pending. However, the deletion of ‘annual’ from the frequency of submission of status report has increased the compliance burden as the liquidator is now supposed to submit status report on a periodical basis.