UNDERSTANDING THE ROLE AND RESPONSIBILITIES OF A LIQUIDATOR UNDER THE IBC

Introduction

Liquidation is the process initiated by or for a company to settle its outstanding debts. In this process, the company’s assets are sold, and the proceeds are used to pay off its liabilities. This step is generally taken as a last resort by creditors when a resolution process has failed.

The Insolvency and Bankruptcy Code (IBC) prioritizes attempts to revive the company through a corporate insolvency resolution process (CIRP) before considering liquidation. If the resolution process is unsuccessful, creditors may then opt for liquidation.

Liquidators, who are insolvency professionals, are appointed to manage the liquidation process. Under Section 34 of the IBC, a liquidator is designated to oversee the liquidation proceedings. If the proceedings begin under Section 33, the insolvency professional who managed the CIRP becomes the liquidator. When a liquidation order is issued, the liquidator takes on all the powers of the Board of Directors, key managerial personnel, and partners of the Corporate Debtor, as authorized by the Adjudicating Authority under the Insolvency and Bankruptcy Code, 2016.

• Who is a Liquidator?

A liquidator is essential in the process of winding up a company, managing the end of business operations and the distribution of assets. They are appointed during the liquidation or winding-up phase and are responsible for gathering the company’s assets, resolving claims against the company, and distributing any remaining assets to the shareholders before the company is dissolved. This role is vital for ensuring that the process is fair and legal, following established regulations, and underscores the significance of liquidators in company law.

• Under what section are the powers and duties of a liquidator are mentioned?

The powers and duties of a liquidator are outlined under Section 35 of the Insolvency and Bankruptcy Code (IBC), 2016.

• What are the powers and duties of a liquidator as mentioned under section 35 of IBC?
• Verify and consolidate all creditor claims.
• Take control of the corporate debtor’s assets, property, effects, and actionable claims.
• Evaluate and report on the debtor’s assets and property.
• Protect and preserve the debtor’s assets and properties.
• Continue business operations for beneficial liquidation.
• Sell the debtor’s assets and claims via auction or private contract, ensuring compliance with Section 52 and excluding ineligible resolution applicants.
• Handle negotiable instruments on behalf of the debtor.
• Administer the estate of any deceased contributory to collect payments due.
• Seek professional assistance as needed.
• Settle creditor and claimant claims, distributing proceeds per the IBC.
• Represent the debtor in legal proceedings.
• Investigate financial affairs for undervalued or preferential transactions.
• Execute necessary documents and actions for liquidation and asset distribution.
• Request orders or directions from the Adjudicating Authority and report on liquidation progress as required.
• Perform additional functions specified by the Board.

• What are the other rights and duties of a liquidator?
• Accept or reject creditor claims.
• Access information systems to verify claims and identify assets in the corporate debtor’s liquidation estate, including sources like Information Utility, Credit Information Systems, and databases maintained by the Board, as specified in Section 37 of the Code.
• Assess any preferential transactions made by the corporate debtor.
• Prevent undervalued transactions.
• Allocate liquidation proceeds according to Section 53 of the Code.
• Apply for the corporate debtor’s dissolution once all assets are liquidated.

• What shall be the fees of the liquidator in the liquidation process?

Regulation 39D of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations) states that the Committee of Creditors, in consultation with the resolution professional, can set the liquidator’s fee. This decision can be made either when approving a resolution plan under section 30 of the Code or when opting to liquidate the corporate debtor under section 33 of the Code, as outlined in regulation 4 of the IBBI (Liquidation Process) Regulations, 2016 (Liquidation Regulations).

• Is it mandatory for the liquidator to constitute a Stakeholder’s Consultation Committee?

The liquidator shall constitute a SCC, within sixty days from the liquidation commencement date (regulation 31A (1) of the Liquidation Regulations).

• Does Section 35(2) of the Code require the liquidator to keep records of consultations with stakeholders?

Regulation 8 of the Liquidation Regulations mandates that the liquidator must record details of any consultations with stakeholders conducted under Section 35(2) of the Code, using the format specified in Form A of Schedule II of the Liquidation Regulations.

• What reports must liquidators submit while managing the processes under the Insolvency and Bankruptcy Code, 2016?

For Liquidation-

Preliminary Report: Must be submitted within 75 days from the Liquidation Commencement Date. This report should outline the capital structure, assets, liabilities, and the proposed plan of action, and must be presented to the Adjudicating Authority.

Asset Memorandum: Required to be prepared and submitted to the Adjudicating Authority within 75 days from the Liquidation Commencement Date.

Progress Reports:

The initial Progress Report is due within fifteen days after the end of the quarter in which the liquidator was appointed.

Subsequent Progress Reports must be submitted within fifteen days after the end of each quarter during the liquidation period.

If the insolvency professional stops acting as liquidator, a Progress Report for the quarter up to the cessation date must be filed within fifteen days of the cessation.

Final Report: To be submitted along with the application for dissolution to the Adjudicating Authority.

For Voluntary Liquidation-

Preliminary Report: To be provided within 45 days from the Liquidation Commencement Date. This report should detail the capital structure, asset and liability estimates, and the proposed plan of action, and must be given to the corporate person.

Annual Status Report: Due 12 months after the Liquidation Commencement Date. It should include a list of stakeholders, details of assets, distributions made, avoidance transactions, and audited accounts showing receipts and payments since the commencement date, and must be submitted to the contributories.

Final Report: To be submitted with the application for dissolution upon completion of the liquidation process to the registrar, Board, and Adjudicating Authority.

Conclusion

In conclusion, under the Insolvency and Bankruptcy Code, 2016, the liquidator’s role is crucial in overseeing the liquidation process of a company. Liquidators are responsible for the systematic disposition of assets, the settlement of creditor claims, and the equitable distribution of proceeds, all in strict adherence to legal and regulatory requirements. They must prepare and file various reports—including preliminary reports, asset memorandums, progress reports, and final reports—each with specified deadlines and conditions. Whether managing a conventional or voluntary liquidation, the liquidator’s role is fundamental in ensuring a fair and transparent procedure. The Code and its associated regulations stipulate detailed processes for setting liquidator fees, constituting stakeholder consultation committees, and maintaining accurate records, all aimed at facilitating an effective liquidation process and protecting the interests of all stakeholders.