IBBI for higher involvement of stakeholders’ consultation committee in liquidation process
The Insolvency and Bankruptcy Board of India (IBBI) has come up with a number of proposals to increase the involvement of Stakeholders’ Consultation Committee (SCC) during the liquidation process.
In one such proposal, the IBBI has proposed the liquidator must consult with the Stakeholders’ Consultation Committee (SCC) before deciding whether to run the business as a going concern. The liquidator must also consider the economic viability of running the business and whether there is a potential buyer for the business as a going concern.
If the liquidator decides to run the business as a going concern, he or she must keep the stakeholders informed of the economic benefits of doing so and seek their advice on the same. The liquidator must also develop a clear exit strategy or potential buyer for the business.
The guidelines also state that the liquidator must consult with the SCC if he or she is unable to sell the business as a going concern even though it is running as a going concern. The SCC will then decide on the marketing strategy to be adopted to attract potential bidders in future auctions.
In another proposal, it has been suggested by the insolvency regulator that the liquidator should hold meeting of the SCC in such a way that interval between two consecutive meetings does not exceed 30 days.
In some liquidation cases, says the IBBI, it has been observed that there is a lack of regular communication between the Liquidator and the SCC, which left the stakeholders unaware about the progress and direction of the liquidation, leading to uncertainty and disputes. The proposed amendment, therefore, seeks to address these issues by institutionalizing regular, transparent, and inclusive communication mechanisms, ensuring that all stakeholders are adequately informed, engaged, and aligned throughout the liquidation journey.
The regulator also proposes to ament the Regulation 13 of the Liquidation Regulations to provide that the liquidator should seek suggestions/observations of the SCC on the draft preliminary report and finalize it, after considering such suggestions / observations, and thereafter, submit it to the AA, Board and members of SCC.
It also proposes to amend Regulation 31A to mandate the liquidator to place the reason for liquidation cost exceeding the estimates of liquidation cost before SCC and discuss ways to rationalise the same by presenting cost and benefits analysis of various expenses: a) if it exceeds the estimated cost mentioned in the preliminary report or b) if it exceeds 10 percent of the liquidation value of the CD.
The new proposals also mandate that in all such cases where the liquidator decides to undertake a fresh valuation of assets of the corporate debtor under regulation 35(2) after consultation with the SCC under regulation 31A: i) The liquidator shall facilitate a meeting wherein registered valuers shall explain the methodology being adopted to arrive at valuation, to the consultation committee before finalisation of valuation reports. ii) The Liquidator shall share the valuation report with the SCC members.
Also Read: Liquidation a legitimate means of resolution under IBC: MS Sahoo
