The insolvency regulator IBBI is set to introduce 16 key measures to bolster the liquidation process. A discussion paper has been issued to gather public input on these changes, aimed at enhancing transparency in auctions, thus expediting the process and improving asset realisation. 

These measures include centralising the listing of corporate debtor assets, strengthening the role of the Stakeholders Consultation Committee (SCC) in valuations, enabling self-declaration of bidder eligibility (under Section 29 A), allowing private sales post-SCC consultation, and ensuring bidder confidentiality. 

Liquidators may conduct private asset sales after SCC consultation, address reasons for cost overruns before the SCC, and seek SCC input before applying for early dissolution, especially when a corporate’s viability is in question. The SCC’s advice will guide decisions on running the corporate debtor as a going concern or not.

Also read: IBBI chief calls for efforts to improve bidders’ confidence

Listing of assets on a centralised platform would improve the visibility of assets, reduce information symmetry and simplify the process for potential bidders, according to the Insolvency and Bankruptcy Board of India (IBBI).

Also now liquidators would be required to place the reasons for liquidation cost exceeding the estimates (of liquidation cost) before the SCC and discuss ways to rationalise the same by presenting cost and benefits analysis of various expenses. This should be done if the liquidation cost exceeds the estimated cost mentioned in the preliminary report or if it exceeds 10 percent of the liquidation value of the corporate debtor. 

Also now before applying for early dissolution, the liquidator would have to mandatorily consult the SCC to seek their views and recommendations. The liquidator would have to provide a detailed report of the consultation and the views of the SCC in the application to the adjudicating authority. 

EXPERTS’ TAKE 

Hari Hara Mishra, CEO, ARC Association, said that the proposed discussion paper is a welcome migration towards committee approach mandating consultative process with SCC on various aspects of commercial decision-making in liquidation.  

The measures proposed to improve ‘sale as a  going concern’, including a possible review of marketing strategy, are welcome to retain economic value, he said. Till March 2023, out of 280 cases dissolved, only 26 cases have been sold as a going concern. 

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Having a listing platform of all assets and streamlining asset sale processes will lead to improved timelines and higher realisations with respect to the ongoing 1,565 liquidation cases, Mishra added. 

Sanjeev Kumar, Partner, Luthra and Luthra Law Offices India said strong hand being dealt to proposed bidders, by allowing forfeiture of earnest deposits in liquidation stage will definitively curb certain malpractices which were creeping into the system and only bring in serious buyers. 

The proposal for listing of all assets with all details on the platform will be a significant development, as often the issue of ‘as is where is’ basis becomes extremely contentious and often litigious, he added.

Padmaja Kaul, Partner, INDUSLAW, said mandatory consultation with the SCC before rejecting bids, even above the reserve price, would ensure transparency and collective decision-making.

Abdullah Qureshi, Associate Partner, IndiaLaw LLP said that the proposed changes would certainly strengthen the liquidation process framework and gain faith of the stakeholders to participate in the liquidation process instead of opting out.

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