Insolvency regulator IBBI has issued a discussion paper that seeks public comments on several measures aimed at streamlining the voluntary liquidation process.
Public comments have been invited on the six proposals by October 26. These changes are expected to provide requisite clarification to the stakeholders with regard to the initiation of the process.
Also the new disclosures would ensure that both the liquidator and corporate person are aware about the pending issues and the corporate person make necessary provisioning for the same. Further, the proposal on financial service provider (FSP) would ensure that only the eligible corporate persons initiate the process.
As regards voluntary liquidation of FSP, the discussion paper proposes that in case the corporate person falls under the category of FSP which has been notified by the central government under section 227 of IBC, the declaration by the company concerned shall provide that it has obtained prior permission of appropriate regulator for initiating voluntary liquidation proceedings.
To tackle the delays in voluntary liquidation process, the IBBI discussion paper proposes to require directors of the corporate debtor —while making declaration for initiation of the process—should disclose pending proceedings or assessments before statutory authorities, and pending litigation in respect of the corporate person.
They should also make sufficient provision to meet the obligations arising, if any, on account of these pending matters.
Commenting on the discussion paper, Hari Hara Mishra, CEO, Association of ARCs in India, said “Ease of doing business also includes easy and quick exit, in case the enterpreneur needs to move out of business. As per IBBI data, in respect of 1590 cases of voluntary liquidations so far, the units had paid up capital of Rs 11,775 crore and 69% of the units had ceased business operations.
Focussing on timely completion of voluntary liquidations will accelerate release of blocked capital, and put non productive assets for better alternative use.”
On FSPs, Rohan Batra, Partner, Anagram Partners, a law firm, said “To address the matter of FSPs that have not been officially notified by the Central government in the November 2019 notification but are proceeding with voluntary liquidation, IBBI has put forth a proposal”.
This proposal entails that such FSPs provide a sworn affidavit confirming if their category of FSPs has been notified by the Central government, he said.
Additionally, they must affirm that they have obtained prior authorization from the appropriate regulator (RBI). This measure is designed to facilitate the early determination of the FSP’s notification status and their eligibility to initiate the voluntary liquidation process, he added.
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