Liquidation Process:
Liquidation order will be passed if:
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CIRP ends
Plan not submitted to NCLT
Plan not approved by COC
Decided by COC
Plan not properly implemented
CONSEQUENCES OF LIQUIDATION ORDER
Following are the consequences of liquidation order:
 Public Announcement stating that the Corporate Debtor is in liquidation.
 All employees and workmen get discharged except where the business of the Corporate Debtor
is continued by the Liquidator.
 No suit or other legal proceeding shall be instituted by or against the Corporate Debtor.
Provided that Liquidator can, with prior permission of NCLT, institute a suit or legal proceeding on
behalf of the Corporate Debtor.
LIQUIDATION STEPS
STEP I
- Appointment of liquidator and consequences:
Section 34 of IBC provides for appointment of Liquidator. The existing RP shall be appointed as
Liquidator with such fees as provided in Regulation 4 of the IBBI (Liquidation Process) Regulation,
2016. RP’s other than the existing RP can also be appointed as liquidator under certain
circumstances.
On passing of the Liquidation Order, all powers of BOD, KMP of the CD shall cease and vest in the
liquidator.
STEP II
- Announcement of Liquidation and calling for submission of claims and appointment of
Valuers
1. Public announcement within 5 days of liquidation order in Form B of Schedule II of IBBI CIRP
inviting claim from all creditors (One in English Language and one in Regional Language)
2. Claims to be received- within 30 days from the date of commencement of liquidation order.
3. Liquidator shall submit the list of creditors with AA within 45 days from the last date of receipt
of claims.
4. Liquidator shall submit its preliminary report within 75 days from the commencement of the
liquidation process detailing:
a. Capital Structure
b. Estimates of its assets and liabilities as on commencement of liquidation process
c. Whether he intends to make any further inquiry in to the matter relating to the
promotion, failure of the corporate debtor
d. Proposed plan of action for carrying out liquidation, including the timeline and the
estimated liquidation cost.
5. Liquidator is required to appoint 2 Valuers to value the assets of the corporate debtor. Report
should be received within 75 days of the Liquidation Order to enable liquidator to file asset
memorandum with AA.
STEP III
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- A. Verification and acceptance of claims
Liquidator shall verify the claims within a period of 30 days of last date of submission and
communicate his decision of admitting/rejecting the claim in 7 days of verification of claim.
Liquidator shall verify all the claims and then admit or reject the claim on the basis of
documents. Creditors cannot force the Liquidator to accept their claim the only remedy
available to them is to file an appeal to AA u/s 42 of IBC, 2016 for accepting or rejecting the
claim.
B. Preparation of Asset Memorandum and other Reports
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After forming liquidation estate under section 36, liquidator shall prepare an asset
memorandum within 75 days from the liquidation commencement date.
Asset Memorandum contains:
o Value of assets as per valuation report
o Intended manner of sale
o Expected amount of realization
o Relevant information for sale of assets
Asset Memorandum shall be filed along with the preliminary report.
Further liquidator needs to file following reports as well:
o Preliminary Report: within 75 days from liquidation commencement date giving
capital structure, estimates of assets & liabilities as per books and the proposed plan
of action for carrying out the liquidation including the timeline during which he
proposes to carry out the estimated liquidation cost.
o First Progress Report and Subsequent Progress Report: First Report shall be
submitted within 15 days after the end of quarter in which he is appointed and
subsequent progress reports within 15 days after the end of quarter in which he act
as liquidator giving settled list of stakeholders, details of properties that remain to
be sold and realized distribution made to the stakeholders, details of fees and
remuneration payable to liquidators, expenses of liquidator, details of material
litigations.
o Sale Reports
o Annual Status Reports
o Minutes of Consultation with stakeholders
o
o
STEP IV
Final Report prior to Dissolution
It may be further noted that Liquidator is required to enclose audited accounts of
the liquidator receipts and payments for every financial year to AA within 15 days of
end of financial year along with progress report of 4th quarter.
- Formation of Liquidation Estate along with inclusions and exclusions:
Inclusion:
1.
2.
3.
4.
Assets over which CD has ownership rights
Movable/Immovable tangible assets
Intangible Assets
Assets in respect of which security interest has been relinquished by a secured
creditor u/s 52 of IBC
5. Assets subject to determination of ownership by the court or authority
6. Any assets or their value recovered through proceedings for avoidance of
transactions
7. All proceeds of liquidation as and when they are realized.
1.
2.
3.
4.
STEP V
Exclusions:
Assets in possession of CD, but owned by a 3rd Party- assets held in trust, bailment,
contracts, contract for ‘use’ of assets and no transfer of title etc.
Assets in security collateral held by financial services providers and are subject to
netting and set-off in multi lateral trading or clearing transactions.
Personal assets of any shareholder or partner of CD, provided the assets are not
held under avoidance transactions
Assets of any Indian or foreign subsidiary of CD.
- Sale of Assets
The Liquidator may sell an asset on a standalone basis or sell
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In slump sale
Set of assets collectively or
In parcels
The liquidator shall ordinarily sell the asset through auction, but in the below mentioned
circumstances the asset may be sold through private sale in the manner as specified in schedule
I:
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Assets are perishable
Asset is likely to deteriorate in value significantly if not sold immediately
Asset is sold at a price higher than reserve price of a failed auction
Prior permission of AA has been obtained.
STEP VI
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- Distribution of Assets as per waterfall:
Insolvency Resolution Process and liquidation cost
Secured Creditors which are relinquished u/s 52 of IBC and Workmen dues (upto 24
months)
Other employees dues ( up to 12 months)
Financial Debts of Unsecured Creditors
Government Dues (up to 2 years) and unpaid Secured Creditors following the enforcement
of security interest u/s 52 of IBC
Any remaining debts and dues
Preference Shareholders if any
Equity Shareholders or partners as the case may be
* Subject to Section 53, liquidator shall not commence distribution before the list of stakeholders and
asset memorandum has been filed with AA.
*Liquidator shall distribute proceeds from realization within six months from receipt of amount of
stakeholders
Secured creditor has the option to:
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Enforce and realise the security outside the Code or
Relinquish its security interest
STEP VII
- Dissolution of Corporate Debtor (to be completed within 2 years)
https://www.slideshare.net/AlokSaksena1/liquidation-process-under-the-insolvency-andbankruptcy-code-2016
Timeline for Liquidation Process
S.NO. SECTION/REGULATION
1
Section 33 and 34
DESCRIPTION
Commencement of liquidation and
appointment of liquidator
NORMS
TIMELINE DAYS
Liquidation
0=T
Commencement
Date