CIRP can be reinstated during liquidation process if market conditions for corporate debtor improves: IBBI
In another ‘big’ change proposed in the consultation paper floated by the Insolvency and Bankruptcy Board of India (IBBI), it has been suggested reinstating corporate insolvency resolution process (CIRP) during the liquidation process if market conditions change and there emerge possibilities that the corporate debtor finds a suitor through the CIRP.
“The liquidation process under the IBC commences after the CIRP, and the corporate debtor is dissolved after its assets are completely liquidated. The liquidator may carry on the Corporate Debtor’s business during the liquidation process if she considers it necessary for its beneficial liquidation. In some limited situations, due to the change in market conditions, it may be possible for the CD to be resolved while the liquidator is running the CD’s business,” argues the paper floated by the IBBI.
Under the current regime, the liquidation process under the Code may also be commenced if the resolution plan does not get implemented as per its terms or gets rejected under section 33 (1) (b) due to the non-compliance of mandatory pre-conditions for approval of the resolution plan. However, even in those cases, there might be situations where the CD still has the potential to be revived in the CIRP if the CoC finds merit in such a proposal.
The paper, thus, proposes that where an approved resolution plan is not implemented or a plan gets rejected under section 33 (1) (b), and the CoC believes that the CIRP may be reinstated, it may be empowered to apply to the adjudicating for such reinstatement.
In the above situations, it will be at the discretion of the adjudicating authority to either reinstate the CIRP or pass a liquidation order for the CD, or continue with the liquidation process, as the case may be.
Improving recoveries for operational creditors in liquidation
Meanwhile, the regulator believes that recoveries made by operational creditors under liquidation are inadequate, even compared to unsecured financial creditors, and hence proposes that all unsecured creditors (financial creditors, operational creditors and any government or authority) other than the workmen and employees shall be treated equally for distribution under Section 53.
The order of priority for the secured creditors, workmen and employees shall be retained as stipulated under Section 53.
