Liquidation process gets easier; quicker disposal of disputed assets, early exit option for creditors
In order to make the liquidation process faster, the insolvency regulator has made a couple of important amendments in the Insolvency and Bankruptcy Code (IBC). The Insolvency and Bankruptcy Board of India (IBBI) has changed the Regulations to enable the liquidator to assign or transfer assets, which are not readily realizable, to any person in consultation with the stakeholders’ consultation committee.
There are certain assets of the corporate debtor which may require an indefinite time for their realisation on account of peculiar nature of such assets or special circumstances. These assets may fall in the category of sundry debts, including refunds from Government and its agencies; contingent receivables, disputed receivables, sub-judice receivables, disputed assets (where, for example, legal ownership is not clear), and assets underlying avoidance transactions.
And since value of these assets is not easily realizable, it takes indefinite time for completing the liquidation process.
To tide over this issue, the regulator now allows the liquidator to assign or transfer such assets to any person, in consultation with the stakeholders’ consultation committee. If that that also does not work, then he/she may distribute the undisposed assets amongst stakeholders with the approval of the adjudication authority.
In another amendment, the regulator now allows a creditor to assign or transfer the debt due to it to any other person in accordance with the laws for the time being in force dealing with such assignment or transfer. This is to give creditors, who may not be willing to wait for completion of liquidation process for realisation of his debt, an exit option before the closure of the liquidation process.
While the focus of the insolvency regulators so far has been towards making the resolution process efficient, the one issue that they had ignored so far is the unending delay in the liquidation process which by law should be over within a year. But that is barely the case.
According to data collated By June 2020, out of 955 cases that have gone into liquidation only 69 had seen any closure (66 closed by dissolution and 3 sold as going concern).
With the new changes, it is hoped that liquidation process will be faster and more productive.
