Money & Banking

Recent liquidation regulation changes will not be retrospective

KR Srivats New Delhi | Updated on August 28, 2019 Published on August 28, 2019

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Will apply only to processes that began on or after July 25, says IBBI

The Insolvency and Bankruptcy Board of India (IBBI) has made it clear that the recent amendments to the liquidation process regulations will only apply prospectively — to those that commenced on or after July 25, when the amendments came into effect.

This clarification has come in the wake of stakeholders expressing difficulty in applying the new regulations to liquidation processes that had commenced before July 25.

It may be recalled that the IBBI had, in the July 25 amendments to the liquidation regulations, stipulated among other things that the process, which was previously required to be completed within two years, would have to be completed within one year. A new model timeline for the liquidation process had been provided for various tasks.

The amendment had also provided that a stakeholders’ consultation committee is required to be constituted by the liquidator within 60 days from the liquidation commencement date, to advise the liquidator on matters relating to the sale of assets of the corporate debtor.

However, the advice, which is required to be cleared by 66 per cent voting share of the committee, shall not be binding on the liquidator, according to Saurav Kumar, Partner at law firm Induslaw.

Ashwin Bishnoi, Partner, Khaitan & Co, observed that the liquidation regulations amendment are progressive reforms designed to iron out the practical challenges seen so far in the liquidation seen process.

“Changes such as liquidation funding by banks and presumption of relinquishment of security interest would be difficult to implement retrospectively. The clarification helps to that extent,” he said.

Challenging task

Aseem Chawla, Managing Partner, ASC Legal, said: “ In order to overcome the hardship of applying the liquidation amendment provisions, the circular reiterates that such amendment provisions would be effective for liquidation proceedings commencing on or after July 25, 2019, the date of its notification.

“Being a substantive amendment and considering that liquidation proceedings are fairly intensive, the retrospective application to the proceedings already in vogue would have been a challenging task.”

Published on August 28, 2019
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