Discussion Paper on Amendment in IBBI (Voluntary Liquidation Process) Regulations, 2017
Introduction
- The Insolvency and Bankruptcy Code, 2016 (‘Code’) primarily provides for reorganisation and insolvency resolution of a corporate person, which is not able to service its debt, in a time bound manner. The corporate person may itself file an application with Adjudicating Authority (AA) for initiation of insolvency resolution process, in case of a default under section 10 of the Code. However, it may also happen that a corporate person, having no dues or being able to pay all its dues, intends to liquidate itself voluntarily for a variety of reasons including but not limited to changed market environment, technological obsolescence, entry of new players or outliving the purpose for which it was set up. The Code provides a mechanism for voluntary liquidation under section 59.
- Section 59 of the Code read with the IBBI (Voluntary Liquidation Process) Regulations, 2017 (‘Voluntary Liquidation Regulations’) provide that a corporate person may initiate voluntary liquidation proceedings if two conditions are met – a) the corporate person has no debt or in a position to pay all the debts; and b) the corporate person is not being liquidated to defraud any person. Upon completion of the voluntary liquidation process, the liquidator shall submit the Final Report along with an application for dissolution of corporate person, to the AA.
- The Code and Voluntary Liquidation Regulations provide for completely market-driven approach in voluntary liquidation process in order to ensure faster outcomes at least possible cost. Under normal circumstances, the intervention of AA in voluntary liquidation process is envisaged only once, i.e., at the time of dissolution of corporate person. The role of AA is limited in voluntary liquidation process (as compared to liquidation process) since most corporate persons initiating voluntary liquidation process either have zero or negligible claims of creditors and are not party to any litigation.
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