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Current Affairs

Liquidation regulations under IBC

Date: 21 November 2020 Tags: Miscellaneous

Issue

The Insolvency and Bankruptcy Board of India (IBBI) has amended the regulations for liquidation under the Insolvency and Bankruptcy Code (IBC).

 

Background

One of the first changes to speed up the liquidation process is allowing the liquidator to assign or transfer any not readily realisable asset.

 

Details

  • The IBBI has said that in order to ensure quick liquidation of companies which are unable to find bidders under IBC, the liquidator can “assign or transfer a not readily realisable asset” to any person. The said transfer or assignment of the asset must be done in consultation with the stakeholders committee.

  • The IBBI has also said that the definition of “a not readily realisable asset” would include any assets of the corporate debtor, which could not be sold through the available options.

  • Any or all assets of the company under liquidation, which is facing some dispute or is involved in some fraudulent transaction, can be sold by the liquidator.

  • The financial creditors can also attach a copy of any court or tribunal’s order which has established that the company had defaulted on debt payments.

  • The liquidator for a company would not have to wait for the entire assets of the company to be sold in one go under liquidation, and can be disposed of to different bidders as and when they come.

  • The other change, which allows creditors to assign or transfer the debt due to them to other creditors of the company, is also intended to help speed up of the liquidation process.

 

Issues associated

  • The new regulations will have to be tested in a court of law or an appropriate forum as its definition of “a not readily realisable asset” is contentious.

  • Another newly amended regulation that is likely to be challenged is about the IBBI allowing the liquidator to distribute the un-disposed of assets among stakeholders, with the approval of the adjudicating authority.

 

Liquidation

  • Liquidation in finance and economics is the process of bringing a business to an end and distributing its assets to claimants.

  • It is an event that usually occurs when a company is insolvent, meaning it cannot pay its obligations when they are due.

  • As company operations end, the remaining assets are used to pay creditors and shareholders, based on the priority of their claims. 

  • The term liquidation may also be used to refer to the selling of poor-performing goods at a price lower than the cost to the business, or at a price lower than the business desires.