Insolvency regulator IBBI has now stipulated that a secured creditor cannot sell the assets of a company undergoing liquidation process to any person barred from submitting an insolvency resolution plan. An amendment to this effect has been made to the current liquidation regulations of the Insolvency and Bankruptcy Board of India (IBBI).

Also, a person, who is not eligible under the code to submit a resolution plan for insolvency resolution of the corporate debtor, cannot be a party in any manner to a compromise or arrangement of the corporate debtor under Section 230 of the Companies Act, 2013.

IBBI has also now said that a secured creditor will have to contribute its share towards insolvency resolution and liquidation process costs and workmen dues within 90 days of the liquidation commencement date, an official release said.

Mehul Bheda, Partner, Dhruva Advisors LLP, said: “The amendments are introduced to bring liquidation on par with the resolution process. The restrictions placed on the promoters under Section 29A of the code are now equally applicable to liquidation.

“This means that no promoter, who is barred from the resolution process, can make a backdoor entry by buying the assets of the company under liquidation or even participating in a scheme of arrangement under Section 230. This is a logical amendment and reinforces the objective of the code to debar certain categories of promoters from taking back control of their companies.” Vidisha Krishan, Partner, MV Kini & Co said the new amendments closes several minor gaps. The most prominent one being the cases where secured creditors had not relinquished their security into liquidation where the excess amounts recovered have to be reverted into liquidation, she said.

Manoj Kumar, Partner, Corporate Professionals, said IBBI has ring-fenced the possibilities of backdoor acquisition of company or assets by ineligible promoters.

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