Liquidators allowed to sell companies as ‘going concern’

Liquidators of companies where an insolvency resolution process has not been successful now have the option to sell them as a going concern, rather than disposing them in parcels.

Through an amendment to its liquidation process regulations, the Insolvency and Bankruptcy Board of India (IBBI) has added the fifth method — as a going concern — of selling assets of a corporate debtor.

Hitherto, there were only four modes for liquidation of a corporate debtor — disposal of its assets, namely, sale on a stand-alone basis; slump sale; sell the assets in parcels; and sell the assets collectively.

Puneet Dutt Tyagi, Executive Partner, Lakshmikumaran & Sridharan, a law firm, said that in any insolvency process, the liquidator strives to obtain the best price for the assets at his disposal.

“If these assets were to be sold as part of a going concern, it would most definitely fetch more than their scrap value. This, in turn, ensures better returns from the liquidation process, which is in the interest of all the stakeholders in this process,” Tyagi added.

G Ramaswamy, past president of the CA Institute, said this will also help protect the interests of employees in viable units and help reduce the time period for liquidation. “It would help in takeover of viable units to protect the interests of employees and other stakeholders,” Ramaswamy said.

“This inclusion (as a going concern) is in line with the spirit of the IBC,” said Monish Panda, Founder, Monish Panda & Associates, a law firm.

The IBC’s objective is to ensure continuity of the corporate debtor as a going concern, to realise maximum value for the creditors and to ensure the welfare of the employees, he said.

105-day deadline

The IBBI has now stipulated that the resolution professional identify the prospective resolution applicants by the 105th day of the insolvency commencement. This will ensure timely completion of the resolution process within the stipulated 180 days, Panda said.

Currently, there is no deadline by which resolution applicants have to be identified; generally, the identification process and criteria keep changing till the fag end of the resolution period; this has led to delays in the completion of the resolution process.

Tyagi said the 105-day deadline will afford the Committee of Creditors sufficient time to scrutinise potential resolution plans in a more in-depth manner, before submitting their final proposal for ratification before the NCLT.

“This seems to be a move in the right direction,” Tyagi said. “However, it remains to be seen whether this amendment will facilitate the purpose behind the enactment of the IBC, or merely result in more parties being rendered unable to recover their dues through this process,” he added.

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