Insolvency and Bankruptcy Board of India (Liquidation Process) (Amendment) Regulations, 2020 w.e.f. 06-01-2020
The present amendment has brought various new restrictions and time frames as under:
CORPORATE LIQUIDATION ACCOUNT
Regulation 2
A clause (ca) under Regulation 2 has been inserted to make provision for “Corporate Liquidation Account”.
It shall be operated and maintained by IBBI, (the Board), in terms of Regulation 46.
Regulation 46
A “Corporate Liquidation Account” is meant for the liquidator to deposit all unclaimed dividends and undistributed properties during liquidation process.
Any income earned thereon shall be also deposited in such an account till an application is filed by the liquidator for dissolution of a corporate debtor under Regulation 45(3).
Before such an amendment, the liquidator was required to deposit the amount of unclaimed proceeds of liquidation or undistributed assets or any other balance payable to the stakeholders on the date of order of dissolution.
The Board will operate and maintain the Corporate Liquidation Account in the Public Accounts of India.
CORPORATE LIQUIDATION ACCOUNT
This has also introduced and mandated a time line for depositing the aforesaid within 15 days of the commencement of the liquidation process.
If liquidator retains any money, which should have been paid by him into the Companies Liquidation Account then he is required to pay the amount along with the interest at the rate of 12% p.a. till the amount is deposited.
Whereas, before such an amendment the liquidator was required to pay penalty along with the interest, as determined by the Board.
The liquidator shall be entitled to a receipt from the Board for any amount deposited into the Corporate Liquidation Account. Previously, it was given by Reserve Bank of India.
Henceforth, the liquidator is also required to submit an evidence of deposit of the amount into the Corporate Liquidation Account along with the statement in the prescribed Form-I.
It should have details of the nature of the amount deposited into the Corporate Liquidation Account, the names and last known addresses of the stakeholders, entitled to receive the unclaimed dividends or undistributed proceeds to the authority with which the corporate debtor is registered and to the Board.
CORPORATE LIQUIDATION ACCOUNT
A stakeholder, who claims to be entitled to any amount deposited into the Corporate Liquidation Account, is required to apply to the Board in Form-J for an order for withdrawal of the amount.
Provided, that if any other person other than stakeholder claims to be entitled to any amount deposited into the Corporate Liquidation Account, then he will be required to submit evidence to satisfy the Board that he is entitled to withdraw such an amount.
Where the Board is satisfied that the stakeholder or any other person referred to under sub-regulation (7) is entitled to withdraw any amount from the Corporate Liquidation Account, then it will make an order for the same in favour of that stakeholder or that person regarding withdrawal of such an amount.
If any amount remains unclaimed or undistributed for a period of 15 years from the date of order of dissolution of the corporate debtor and any amount of income or interest received or earned thereon, in the Corporate Liquidation Account, shall be transferred to the Consolidated Fund of India, instead of general revenue account of the Central Government.
COMPROMISE OR ARRANGEMENT
Regulation 2B
Before the amendment, the Regulation 2B(1) of IBBI (Liquidation Process) Regulation, 2016 provided that any Compromise or Arrangement proposed under section 230 of the Companies Act, 2013, should be completed within the stipulated period of 90 days of the order of liquidation.
Previously, there were no categorical restriction regarding the eligibility of the person who can be a party to the Compromise or Arrangement of the company.
Now, a specific proviso have been inserted under sub-regulation 1 of Regulation 2B whereby a person, who is not eligible under Section 29A of Insolvency and Bankruptcy Code, 2016 to submit a resolution plan for insolvency resolution of the Corporate Debtor shall also not be a party in any manner to such Compromise or Arrangement.
The move will close doors on promoters trying to regain control of their insolvent firms during liquidation proceedings.
COMPROMISE OR ARRANGEMENT
Background Case Reference
In the matter of Jindal Steel and Power Limited Vs Gujarat NRE Coke in Company Appeal (AT) No. 221 of 2018, the NCLAT held that
“…it is clear that the Promoter, if ineligible under Section 29A cannot make an application for Compromise and Arrangement for taking back the immovable and movable property or actionable claims of the ‘Corporate Debtor’.”
In the matter of Anuj Bajpai vs SBI in MA 1123/2018 in CP No. 172/IBC/NCLT/MB/MAH/2017, the NCLT held that,
“Therefore, it is necessary as well as need of the hour to read the rights enshrined U/s 52 along with the proviso of subsection (f) of S. 35(1) as well as S. 29A of the Code.”
COMPROMISE OR ARRANGEMENT
Background Case Reference
In Swiss Ribbons Pvt. Ltd, & Anr, the Apex Court while heavily relying upon the Preamble to IBC which lays to maintain a balance between all stake holders, the Court held as under:
“An Act to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship……..”
“This, in turn, will promote entrepreneurship as the persons in management of the corporate debtor are removed and replaced by entrepreneurs. When, therefore, a resolution plan takes off and the corporate debtor is brought back into the economic mainstream...”
“The Code is thus a beneficial legislation which puts the corporate debtor back on its feet, not being a mere recovery legislation for creditors….“
PRESUMPTION OF SECURITY INTEREST
Regulation 21A
Before the Amendment, Regulation 21A(2) of IBBI (Liquidation Process) Regulation, 2016 provided that when a secured creditor proceeds to realize its security interest then he should pay the amount as payable under Section 53(a) and Section 53(1)(b)(i), as it would have shared in case it had relinquished the security interest.
After amendment, the Regulation 21A(2) provides that in case where Secured Creditor proceeds to realize the security interest, then he is required to pay the realized amount as payable under Section 53(a) and Section 53(1)(b)(i), to the liquidator within period of 90 days from the liquidation commencement date.
The excess of the realized value of the asset shall be paid, which is subject to security interest, over the amount of his claims admitted, to the liquidator within period of 180 days from the liquidation commencement date.
PRESUMPTION OF SECURITY INTEREST
In case the amount to be paid to the liquidator is not certain then Secured Creditor should pay such an amount which shall be specified by the liquidator.
If the Secured Creditor has paid an amount in excess to the actual amount payable then the liquidator should refund the excess amount to the Secured Creditor.
Where a Secured Creditor has paid an amount less than the actual amount payable then the Secured Creditor should pay the remaining amount to the liquidator.
Regulation 21A(3) now provides that if a Secured Creditor fails to comply with sub regulation (2), then the assets which is subject to security interest, shall become a part of the liquidation estate.
SECURITY INTEREST OF SECURED CREDITOR
Regulation 37
Before the Amendment, Regulation 37(1) required that if a Secured Creditor seeks to realise its security interest, he was required to intimate liquidator that he wants to realise its secured assets at a particular price.
Further, Regulation 37(2) mandated that liquidator should inform the Secured Creditor, within period of 21 days, if a person is willing to buy such secured asset at a price higher than the price requested by the Secured Creditor.
This was subject to a stipulated period of 30 days from the receipt of the said application from the Secured Creditor.
Once the liquidator informs the secured creditor of a person willing to buy the secured asset then secured creditor should sell the asset to such person.
But, there was no restriction on the Secured Creditor that he cannot sell secured assets to any class of persons.
SECURITY INTEREST OF SECURED CREDITOR
Restriction has been put by way of an insertion of Regulation 37(8) via the latest amendments in the Regulation.
The newly introduced Regulation imposes a categorical restriction on the Secured Creditor to the effect that he should not sell or transfer an asset, which is subject to security interest, to any person who is not eligible under Section 29A of Insolvency and Bankruptcy Code, 2016.
A person who is ineligible to submit a resolution plan for insolvency resolution of a corporate debtor under Section 29A is now barred from buying any asset during liquidation.
The intent of this amendment is that there should not be any back door entry benefit to any defaulter under the Code.
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