New Amendments by IBBI to Strengthen Liquidation Process
The Insolvency and Bankruptcy Board of India (IBBI) has recently made significant amendments to enhance the regulatory framework of the liquidation process under the Insolvency and Bankruptcy Board of India Regulations, 2016. The amended rules were notified on February 12, 2024, and are aimed at facilitating a smoother and more accountable process for liquidation. These changes seek to boost stakeholder confidence in the liquidation process and ensure better outcomes.
Assets Allotted to Allottees Excluded from Liquidation Estate
One noteworthy amendment introduced by IBBI states that if a corporate debtor has already given possession of an asset to a party in a real estate project, that particular asset shall not be considered a part of the corporate debtor’s liquidation estate. This move is expected to safeguard the interests of parties who have been allocated houses or flats in completed real estate projects. Excluding these assets from the liquidation estate will likely provide more clarity and help protect the rights of allottees who have received possession of their properties. However, industry experts emphasize the need to differentiate between completed and under-construction projects. Nesara B.S., chairman of Concorde, pointed out that completed projects with registered units handed over to the allottees can be excluded. On the other hand, for under-construction projects where allottees have paid a partial amount but the registration and handover are pending, Nesara urged that they should be included in a consolidated resolution plan. This would ensure a smoother resolution process for such projects.
Reduced Reserve Price for Valued Assets
To facilitate a more efficient liquidation process, the amendment allows the liquidator to reduce the reserve price by up to 25% for assets that already have an existing valuation under the Corporate Insolvency Resolution Process (CIRP). The reduction in the reserve price can take place with the approval of the Stakeholders’ Consultation Committee (SCC) at any time during the liquidation process. For assets where a fresh valuation is undertaken during the liquidation, the reserve price can be reduced by up to 10% in subsequent auctions, again subject to SCC’s approval. This provision will enable competitive bidding and potentially attract more buyers, leading to better recovery.
Streamlined Reporting Obligations of Liquidators
The amended rules also lay down stricter reporting obligations for liquidators. Liquidators must convene SCC meetings at least once every 30 days to ensure timely decisions and effective oversight. However, the frequency of these meetings may be reduced if deemed necessary, provided that at least one meeting is held per quarter to address pending matters and review progress. During SCC meetings, liquidators must present comprehensive reports highlighting the progress made in the liquidation process. These reports should include information on all legal proceedings, the status of the process, and the costs incurred thus far. Furthermore, any cost overruns beyond the initial estimates must be duly justified and accompanied by a rationalization plan. This measure seeks to promote transparency and accountability in the liquidation process.
Focus on Stakeholder Confidence and Efficiency
The recent amendments introduced by the IBBI clearly emphasize the importance of boosting stakeholder confidence and ensuring efficiency in the liquidation process. By excluding assets allotted in real estate projects from the corporate debtor’s liquidation estate, the rights and interests of allottees who have received possession of their properties are protected. The provision for reducing the reserve price of assets with existing valuation aims to enhance competition and improve recovery. Additionally, the strengthened reporting obligations for liquidators foster transparency and accountability throughout the process. Overall, these amendments are expected to have a positive impact on the liquidation process and contribute to a more orderly and effective resolution. The regulatory changes address crucial aspects and streamline procedures, ensuring better outcomes for all stakeholders involved in the liquidation process.
