Companies

IBBI proposes 2 steps to expedite corporate liquidation process

K.R.Srivats New Delhi | Updated on August 29, 2020

Liquidators may be allowed to assign 'Not Readily Realisable Assets' to third parties; creditors may get to transfer debt

Corporate liquidation process may not get unduly delayed in the coming days if the insolvency regulator IBBI has its way. On the anvil are two steps— enabling liquidator to assign ‘Not Readily Realisable Assets’ (NRRA) through public auction to third parties and allowing creditors to transfer or assign their debt during the liquidation process to any other person— that will help expedite the liquidation process and complete it within prescribed timelines under IBC.

Both these proposals forms are a part of a new discussion paper that Insolvency and Bankruptcy Board of India (IBBI) has released and sought public comments by September 16.

Allowing the assignment of debt by a creditor under liquidation process to a third party would lead to Pareto improvement in allocation of resources in the economy, says the IBBI discussion paper. It would benefit the stakeholders involved in the liquidation process by providing them with an additional option of exit at earlier stage.

It would also benefit the economy as a whole since the creditors including financial creditor with early exit can further lend those funds and thereby increase availability of credit in the economy and promoting entrepreneurship.

Not readily realisable assets (NRRA)

NRRAs are those assets that require an indefinite time for their realisation on account of the peculiar nature of such assets or special circumstances. Such assets fall in the category of sundry debts, including refunds from Government and its agencies; contingent receivables; disputed receivables; sub juice receivables and disputed assets (where for example legal ownership is not clear) and assets underlying avoidance transactions.

Both in terms of value and time, NRRA remain the realm of uncertainty. Presence of such assets in the kitty is detrimental to attainment of the objective of time bound closure of liquidation process as envisaged under the Insolvency and Bankruptcy Code (IBC).

Expert’s take

Aseem Chawla, Managing Partner, ASC Legal said the discussion paper recognises that time is of the essence of a liquidation process and to subserve the same identifies that asset categorisation in the form "Not Readily Realisable Asset " and its disposal and of assignment of debts/interest in favour of creditors could be the two means to expedite the liquidation process.

Souvik Ganguly, Founder & Managing Partner, Acuity Law said that it is good to see that to prevent unlikely situations like backdoor entry by defaulting promoters, the discussion paper contemplates applicability of section 29A of the Code to the third parties who may be selected as the assignees of the NRRA.

Vidisha Krishan, Partner, MV KIni & Co, a law firm, said: “Expediting the sale of assets which cannot be realized immediately by an assignment will officially atleast bring the liquidation process to a faster halt as these assets will be off the hands of the liquidator. The faster such inherently difficult assets are monetized the more will be the economic benefit.”.

Published on August 29, 2020

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