Amendments made to the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016

On 6th January, 2020, the Insolvency and Bankruptcy Board of India ("IBBI"/ "Board") notified the Insolvency and Bankruptcy Board of India (Liquidation Process) (Amendment) Regulations, 2020. The following changes and clarifications have been brought into effect by way of the aforesaid amendment(s):

I. Regulation 2B: Regulation 2B provides for compromise or arrangement proposed under Section 230 of the Companies Act, 2013. Regulation 2B has been amended and a specific proviso has been added to the effect that now a person, who is not eligible under the Code to submit a resolution plan for insolvency resolution of the corporate debtor, shall not be a party in any manner to such compromise or arrangement.

II. Regulation 37: Similar to the proviso added in Regulation 2B, sub-regulation (8) has been inserted in Regulation 37 which provides for realization of a security interest by a creditor. Sub-regulation (8) provides that a secured creditor shall not sell or transfer an asset, which is subject to security interest, to any person, who is not eligible under the Code to submit a resolution plan for insolvency resolution of the corporate debtor.

The amended Regulation 2B and Regulation 37 thus prima facie aim at preventing defaulting promoters from regaining control of their companies at the stage of liquidation.

III. Regulation 21A: the amended Regulation 21A now casts an obligation on the secured creditor who proceeds to realise its security interest to pay:

  1. as much towards the amount payable towards the insolvency resolution process cost, liquidation process cost and workmen's dues, as it would have shared in case it had relinquished the security interest, to the liquidator within ninety days from the liquidation commencement date; and
  2. the excess of the realised value of the asset, which is subject to security interest, over the amount of his claims admitted, to the liquidator within one hundred and eighty days from the liquidation commencement date.

In case, the aforesaid amount payable is not certain by the date the amount is payable, the secured creditor shall pay the amount, as estimated by the liquidator. Any difference between the amount payable and the amount paid, as stated above shall be made good by the secured creditor or the liquidator, as the case may be, as soon as the amount payable is certain and so informed by the liquidator.

The consequence of a secured creditor failing to comply with the above, is that the asset, which is subject to security interest, shall become part of the liquidation estate.

IV. Regulation 46: the amended Regulation 46 now provides for a corporate liquidation account. It provides that the Board shall operate and maintain an Account to be called the Corporate Liquidation Account in the Public Accounts of India.

Liquidator to deposit unclaimed dividends and undistributed proceeds with any income earned thereon

In terms of Regulation 46, a liquidator shall deposit the unclaimed dividends, if any, and undistributed proceeds, if any, in a liquidation process along with any income earned thereon till the date of deposit into the Corporate Liquidation Account before he submits an application for dissolution of the corporate debtor. A liquidator, who holds any amount of unclaimed dividends or undistributed proceeds in a liquidation process on the date of commencement of the Insolvency and Bankruptcy Board of India (Liquidation Process) (Amendment) Regulations, 2020, shall deposit the same within fifteen days of the date of such commencement, along with any income earned thereon till the date of deposit. A liquidator shall submit to the authority with which the corporate debtor is registered and the Board, the evidence of deposit of the amount into the Corporate Liquidation Account under Regulation 46, and a statement in Form-I setting forth the nature of the amount deposited into the Corporate Liquidation Account, and the names and last known addresses of the stakeholders entitled to receive the unclaimed dividends or undistributed proceeds. The liquidator shall be entitled to a receipt from the Board for any amount deposited into the Corporate Liquidation Account under Regulation 46.

Failure to deposit

A liquidator, who fails to deposit any amount into the Corporate Liquidation Account under Regulation 46, shall deposit the same along with interest thereon at the rate of twelve percent per annum from the due date of deposit till the date of deposit.

Withdrawal of amount

A stakeholder, who claims to be entitled to any amount deposited into the Corporate Liquidation Account, may apply to the Board in Form J for an order for withdrawal of the amount. If any other person other than the stakeholder claims to be entitled to any amount deposited into the Corporate Liquidation Account, he shall submit evidence to satisfy the Board that he is so entitled. The Board may, if satisfied that the stakeholder or any other person as referred to above is entitled to withdrawal of any amount from the Corporate Liquidation Account, make an order for the same in favour of that stakeholder or that other person.

Duties of the Board

The Board shall maintain a corporate debtor-wise ledger of the amount deposited into and the amount withdrawn from the Corporate Liquidation Account under Regulation 46. The Board shall nominate an officer of the level of Executive Director of the Board as the custodian of the Corporate Liquidation Account and no proceeds shall be withdrawn without his approval. The Board shall maintain proper accounts of the Corporate Liquidation Account and get the same audited annually. The audit report along with the statement of accounts of the Corporate Liquidation Account referred to hereinabove shall be placed before the Governing Board and shall be forwarded to the Central Government.

Amount that remains unclaimed and undistributed

Any amount deposited into the Corporate Liquidation Account in terms of Regulation 46, which remains unclaimed or undistributed for a period of fifteen years from the date of order of dissolution of the corporate debtor and any amount of income or interest received or earned in the Corporate Liquidation Account shall be transferred to the Consolidated Fund of India.

Amendments made to the Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017

Akin to the amendment in Regulation 46 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, Regulation 39 has been amended in the Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017, on 15th January, 2020, which provides for a Corporate Voluntary Liquidation Account, and amongst other things mandatorily requires the liquidator to deposit the amount of unclaimed dividends, if any, and undistributed proceeds, if any, in a liquidation process along with any income earned thereon till the date of deposit, into the Corporate Voluntary Liquidation Account.

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