Monday, 30th October 2017

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Liquidation rules tightened

The amendment provides a process for a stakeholder to seek withdrawal from the corporate liquidation account

By TT Bureau in Calcutta
  • Published 8.01.20, 12:48 AM
  • Updated 8.01.20, 12:48 AM
  • a min read
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The Insolvency and Bankruptcy Code (IBC) provides for a time-bound resolution process for stressed corporates (Shutterstock)

A secured creditor cannot sell assets of a company undergoing a liquidation process to any person barred from submitting an insolvency resolution plan, as per a new amendment made to the norms by the Insolvency and Bankruptcy Board of India (IBBI).

Besides, a secured creditor will have to contribute its share towards insolvency resolution and liquidation process costs and workmen’s dues within 90 days of the liquidation commencement date, an official release said on Tuesday.

The Insolvency and Bankruptcy Code (IBC) provides for a time-bound resolution process for stressed corporates. In case the resolution process does not materialise, the entity goes for liquidation.

The amendment provides a process for a stakeholder to seek withdrawal from the corporate liquidation account.

“The amendment clarifies that 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 a compromise or arrangement of the corporate debtor under section 230 of the Companies Act, 2013,” it said.

“The amendments are introduced to bring liquidation on par with the resolution process. The restrictions placed on the promoters under Section 29A of the code are now equally applicable to liquidation. This means that no promoter, who is barred from the resolution process, can make a backdoor entry by buying the assets of the company under liquidation or even participating in a scheme of arrangement under Section 230,” according to Mehul Bheda, partner, Dhruva Advisors LLP.

Also, the secured creditor has to pay the excess of realised value of the asset, which is subject to security interest, over the amount of its claims admitted, within 180 days of the start of liquidation .

“The amendment to apply Section 29A to a scheme in liquidation is in line with the objective of the IBC to disallow persons who are disqualified from submitting a resolution plan from reacquiring the company through the mechanism of a scheme or in enforcement of security interests by secured creditors,” L. Viswanathan, partner Cyril Amarchand Mangaldas said.