Liquidation: IBBI tweaks norms to speed up insolvency process

To expedite the liquidation process, the Insolvency and Bankruptcy Board of India (IBBI) has amended regulations to enable the liquidator of a stressed firm to assign or transfer a ‘not readily realisable asset’ to any person in consultation with the stakeholders’ consultation committee.

In a statement, the IBBI said the “not readily realisable asset” means any asset included in the liquidation estate “which could not be sold through available options and includes contingent or disputed assets, and assets underlying proceedings for preferential, undervalued, extortionate credit and fraudulent transactions”.

Prior to this move, while the Insolvency and Bankruptcy Code (IBC) envisages early closure of the liquidation process so that assets of the stressed firm are quickly released for alternate uses, the process typically takes longer where the liquidation estate includes a ‘not readily realisable asset’.

“Thus, a liquidator shall attempt to sell the assets at the first instance, failing which he may assign or transfer an asset to any person, in consultation with the stakeholders’ consultation committee, and failing which he may distribute the undisposed of assets amongst stakeholders, with the approval of the adjudicating authority (NCLT),” the regulator said.

Data available with the IBBI show, of the 2,108 ongoing cases as of June 2020, as many as 955 stressed firms, or 53% of those that underwent the insolvency process, witnessed liquidation. However, almost 73% of the firms that ended up in liquidation had been either defunct or terminally sick before the IBC was invoked. Nevertheless, given the large number of the firms witnessing liquidation, tweaking the regulations to expedite the process was necessary.

For the creditors who are unwilling to wait for the completion of liquidation process for realisation of their debt, the IBBI has also amended the regulations to enable the creditors to assign or transfer the debt due to them to any other person, subject to certain conditions.

The IBBI has also tweaked the regulations to mandate that the resolution professional intimate each claimant the principle or formulae for payment of debts under a resolution plan, within 15 days of the NCLT clearing the plan.