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Sam Ghosh Founder and SEBI Regd. Investment Adviser at Wisejay Private Limited Bangalore, Karnataka
Insolvency and Bankruptcy Code, 2016 (IBC) for Corporate persons. Part 4 : Liquidation Process
1 answer/comment
10:04:19 AM, 7th August, 2019
  • Sam GhoshFounder and SEBI Regd. Investment Adviser at Wisejay Private LimitedBangalore, Karnataka

    CIRCUMSTANCES LIQUIDATION IS INITIATION ?

    1. If NCLT does not receive a resolution plan before the end of the resolution process period or the maximum time permitted for the resolution process in case of the fast-track resolution process.

    2. If NCLT rejects the resolution plan for non-compliance.

    3. If the resolution professional informs the NCLT about the decision of the committee of creditors on the liquidation.

    4. If the corporate debtor violates the resolution plan approved by NCLT and any person other than the corporate debtor who got negatively affected by such violation requests NCLT for liquidation


    To initiate the liquidation process, NCLT passes an order for liquidation, issues a public notice and informs the authority with which the company is registered.


    APPOINTMENT OF A LIQUIDATOR

    The resolution professional may act as the liquidator if not replaced by the NCLT. NCLT may also replace the resolution professional to appoint a new liquidator if the resolution plan submitted by the resolution professional is rejected or the Insolvency and Bankruptcy board recommends a replacement.

    Upon appointment, all the powers of the board of directors of the corporate debtor and the key personnel will cease of exit and the liquidator will have authority over the personnel of the corporate debtor.

    The fee payable to the liquidator will come from the proceeds of liquidation of the corporate debtor.


    LIQUIDATION PROCESS

    1. Consolidation and verification of claims

    Within 30 days of the beginning of the liquidation process, the liquidator will receive or collect claims from all financial and operational creditors. The creditors can withdraw or edit their claims within 14 days of submission.

    The liquidator then verifies the claims and can ask for documentary proof from the creditor and can accept or reject the claims and communicates to the creditor within 7 days of such decision. The creditor may challenge a rejection decision with NCLT within 14 days.


    2. Valuation of Claims

    The liquidator values the claims as per the guidelines of the Insolvency and Bankruptcy Board.


    3. Treatment of preferential transactions at the relevant time

    A preferential transaction is referred to a transfer of property or interest which puts the creditor or a surety or a guarantor at a beneficial position than it would have been due to liquiation under insolvency proceedings.

    Relevant time in case of a related party is two years prior to the insolvency commencement and in case of a non-related party one year prior to the insolvency commencement date.


    The liquidator can inform the NCLT on such preferential transaction and NCLT may order to regain any property transferred through such preferential transaction or remove any security interest among other actions.


    4. Treatment of undervalued transactions

    An undervalued transaction is referred to a transaction where the corporate debtor made a gift or the transfers an asset for a much lower consideration than that the corporate debtor has paid. The relevant period of such transaction is two years for related parties and one year for non-related parties.

    The liquidator may request the NCLT to declare such transactions void and reverse the effect of such transaction.


    5. Treatment of extortionate credit transactions

    Extortionate credit transactions are credit transactions for which the terms are grossly unfair or exorbitant compared to the risk accepted by the creditor.

    If the corporate debtor was a part of such a transaction in two years proceeding to the insolvency proceedings, the liquidator can apply to the NCLT to totally or partially reverse such transaction.


    6. Treatment of secured creditors

    The secured creditors have the option to relinquish their security-interests or realise their security interest.

    If they choose to realise their security interest they have to inform the liquidator and identity the assets secured.

    In case they decide the relinquish their security interest, they get priority before the unsecured credits.


    7. Distribution of assets

    The proceeds of the liquidation are distributed in the following order

    a. The full cost of resolution and liquidation process.

    b. Workmen's dues for the period of twenty-four months and debt owed to the secured creditors who relinquished their security interest.

    c. Wages and due to the employees other than the workmen for the period of twelve months.

    d. Financial debt to the unsecured financial creditors.

    e. Any amount due to the central or state government and any amount unpaid to the secured creditors after the realisation of the security interest.

    f. Any remaining debts and dues.

    g. Preference shareholders if applicable.

    h. Equity holders.


    8. Dissolution of the corporate debtor

    After all the assets of the corporate debtor are liquidated, the liquidator can request the NCLT to dissolve the debtor.



    Related Link

    http://www.mca.gov.in/Ministry/pdf/TheInsolvencyandBankruptcyofIndia.pdf

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