IBBI Proposes Changes To Liquidation Process Under IBC, Invites Public Comments Till 10th November 2023

The Insolvency and Bankruptcy Board of India (“IBBI”) on 20.10.2023 has published a Discussion Paper on ‘Strengthening the Liquidation Process’ under the Insolvency and Bankruptcy Code, 2016 (“IBC”). The IBBI has also invited comments from the public/stakeholders regarding proposed changes to the Liquidation framework. The comments can be submitted online at www.ibbi.gov.in till 10.11.2023. The proposed changes to IBBI (Liquidation Process) Regulations, 2016, are as under: Proposed Changes Review of Auction FrameworkThe auction notice shall provide that the prospective bidders shall undertake that they are eligible under section 29A of the IBC to participate in the auction process. It shall also provide that in case the bidder at any stage during the auction is found to be ineligible, his EMD shall stand forfeited by the liquidator.To ensure confidentiality of the names of prospective bidders participating in the auction process, manner in which earnest money to be deposited by prospective bidder shall be notified through Circular by the Board. The Liquidator shall within 3 days of declaration of H1 bidder conduct due diligence and verification of the eligibility of the bidder, who stood as the H1 (highest) bidder in the auction process. The liquidator shall place before the Stakeholders Consultation Committee (SCC) for its consideration under regulation 31A the result of the auction, the details of the highest bidder, due diligence conducted by him on its eligibility and the result of such due diligence. In case the highest bid above reserve price is not acceptable for any reason to the liquidator, the consultation with SCC shall be mandatory.Reduction in reserve priceClause (4A) may be deleted from Schedule I which shall ensure that the reserve price in an auction is reduced by maximum 10% at a time.Monitoring Private SaleClause (c) of Regulation 33 to be omitted. Further, Regulation 33(2) may be amended to provide that the liquidator may sell the assets of the CD by means of private sale only after the prior consultation with SCC and the successful buyer shall also be confirmed after such consultation.Listing of all assets on listing platformThe regulations may provide that the liquidator should list all assets of the CD as per the Asset Memorandum, on a listing platform in the manner to be notified by the Board, which would significantly improve the visibility of assets, reduce information asymmetry and simplify the process for potential bidders. Each asset listed should contain all material information about the assets such as status of attachment or lien, geographic coordinates, envisaged mode of sale and likely date of auction. By listing assets much earlier than the auction date, the process would ensure greater engagement for the prospective bidders and availability of more time with bidders for due diligence, leading to more competitive bidding.Circulation of progress reports to stakeholdersRegulation 15 may be amended to provide that the progress reports shall also be shared with the SCC.Simplification of calculation of liquidator’s feeLiquidator’s fee specified in the first column will be applicable for the realisation made up to the end of six months from the end of quarter in which liquidation has commenced. However, no period will be allowed to be excluded on account of inability to sell assets because of any litigation. Renegotiation of fees with Stakeholders’ Consultation Committee will be permitted in cases where fees are unviable because of the majority of assets being under litigation.Meetings of SCC at regular intervalsThe Liquidator shall be mandated to hold meeting of the SCC in such a way that interval between two consecutive meetings does not exceed 30 days.Preliminary ReportRegulation 13 may be amended to provide that the Liquidator shall seek suggestions / observations of the SCC on the draft preliminary report and finalize it, after considering such suggestions / observations, and thereafter, submit it to the AA, Board and members of SCC.Liquidation CostRegulation 31A may be amended to mandate the liquidator to place the reason for liquidation cost exceeding the estimates of liquidation cost before SCC and discuss ways to rationalise the same by presenting cost and benefits analysis of various expenses: i) if it exceeds the estimated cost mentioned in the preliminary report or. ii) if it exceeds 10 percent of the liquidation value of the CD.Valuation relatedIn all such cases where the liquidator decides to undertake a fresh valuation of assets of the CD under regulation 35(2) after consultation with the SCC under regulation 31A: i) The liquidator shall facilitate a meeting wherein registered valuers shall explain the methodology being adopted to arrive at valuation, to the consultation committee before finalisation of valuation reports. ii) The Liquidator shall share the valuation report with...

IBBI Proposes Changes To Liquidation Process Under IBC, Invites Public Comments Till 10th November 2023

Pallavi Mishra

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