IBBI Revamps Liquidation Norms for Enhanced Efficiency and Accountability

In a significant move to enhance the efficiency and accountability of the liquidation process, the Insolvency and Bankruptcy Board of India (IBBI) has introduced several amendments to the existing norms. These amendments aim to streamline the liquidation process, ensuring greater transparency and stakeholder involvement.

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Regular Stakeholders Consultation Committee Meetings

One of the key changes introduced by IBBI is the requirement for liquidators to convene meetings of the Stakeholders Consultation Committee (SCC) at regular intervals. These meetings must be held every 30 days, with the option to reduce the frequency subject to specific conditions. During these meetings, liquidators are required to present comprehensive reports detailing the progress made in the liquidation process.

Revised Reserve Price for Asset Sales

To facilitate the smooth disposal of assets during liquidation, IBBI has revised the reserve price reduction criteria. Liquidators can now reduce the reserve price by up to 25% for assets with existing valuation from the Corporate Insolvency Resolution Process (CIRP) once during the liquidation process, subject to SCC approval. Additionally, for assets where a fresh valuation is conducted during liquidation, the reserve price can be reduced by up to 10% in subsequent auctions with SCC's nod.

Private Sale of Assets

The amended norms provide liquidators with the flexibility to sell assets of the corporate debtor through private sales after prior consultation with the SCC. However, the option for private sale at a price higher than the reserve price of a failed auction has been removed.

Consultation with SCC for Legal Proceedings

To ensure informed decision-making, liquidators must consult with the SCC before initiating or continuing any legal proceedings. They are required to present a detailed economic rationale for such actions, seeking the committee's guidance and recommendations.

Early Dissolution and Compromise Proposals

Before applying for early dissolution, liquidators must seek the SCC's views and recommendations, providing a comprehensive report to the adjudicating authority. Furthermore, liquidators can file a proposal for compromise or arrangement only in cases where the Committee of Creditors has made such a recommendation during the CIRP. Such proposals must be filed within 30 days from the liquidation commencement date, as per the amended norms.

Effective Date and Significance

The amended Insolvency and Bankruptcy Board of India Liquidation Process Regulations, 2016 came into effect on February 12, 2023. These amendments are expected to bring about greater efficiency, transparency, and accountability in the liquidation process, benefiting all stakeholders involved.

IBBI, as a key institution responsible for implementing the Insolvency and Bankruptcy Code (IBC), continues to play a vital role in fostering a robust and effective insolvency resolution framework in India.