The amended liquidation regulations under IBC, and the questions they raise
The Insolvency and Bankruptcy Board of India (IBBI) has amended the regulations for liquidation under the Insolvency and Bankruptcy Code (IBC) by which it effectively allowed the liquidator to assign or transfer a “not readily realisable asset” to any person in consultation with the stakeholders’ consultation committee.
New regulations announced by the IBBI
- 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 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.
- Other than that, the financial creditors can, for the purpose of furnishing a record of default, submit their own book which establishes lapse of payment of debt by the corporate debtor.
- The financial creditors can also attach a copy of any court or tribunal’s order which has, through an order, established that the company had defaulted on debt payments.
- The insolvency regulator has also amended the regulation to allow certain creditors, who do not want to wait for the liquidation process to be over, to exit the process by assigning or transferring the debt due to them, to other creditors of the company.
The challenges for the new amended regulations
- 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.
- The 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.
- This will lead to creditors, be they financial or operational, challenging the distribution of the assets, and claiming that one or the other party has been favoured by the liquidator.