Most of us are aware of the Insolvency and Bankruptcy Code, 2016, and it is for mending relations between the Company/ Corporate Debtor and their creditors. The main purpose of the Code is the resolution, not liquidation. Now, here the confusion arises that what is this article about. So, this is to be kept in mind that, the liquidation process gets initiated where:
- the creditors of the company remain unsuccessful in bringing an effective resolution to the corporate debtor;
- the CoC (Committee of Creditors) decide with a 66% vote that it is in the best interest of the corporate debtor and its stakeholders that the liquidation process of the company is initiated.
After the enactment of the Code, the resolution process was introduced to naturalize the company, in other words making it debt-free. It was accomplished by announcing a moratorium period, where all the proceedings or actions of the creditors of the corporate debtor may remain suspended. During this period company is preserved as a going concern and later, proposals are invited for the sale of that company in its present form. At the time of the beginning of IBC, the liquidation process was a rudimentary alternative to CIRP as the main purpose of liquidation is to discharge all the assets of the company and dissolve it. It has been held that the main purpose of IBC is resolution but not liquidation. Now, after the amendments, the liquidator can sell the company as a going concern under liquidation. Unlike at the time of CIRP, where the said is the only option available, the liquidator may or may not decide to sell the company as a going concern as there are much more options available like selling assets in a parcel or slump sale.in opposition to 180 days time limit which can be extended up to 270 days in the case of CIRP, the liquidation process is to be completed within 2 years.
Initiation of Liquidation
Section 33 of the IBC talks about the cases where liquidation can be initiated by NCLT. Those cases are:
- Suppose NCLT does not receive a resolution plan from within the period agreed, that is 180 days and can even be extended to 90 days more. Then the NCLT will automatically order the company to liquidate.
- If NCLT receives the resolution plan from CoC and rejects it for not coping up to the requirements given in IBC, the NCLT will order the company to liquidate.
- If CoC wants the corporate debtor to be liquidated by a 66% vote, after the commencement of CIRP but before the resolution plan is confirmed, then the liquidation order may be passed by NCLT when the decision is intimated to NCLT by RP.
- If after the approval of the resolution plan by NCLT, the corporate debtor breaches that plan, then any person apart from the corporate debtor who is affected by this contravention may file an application to NCLT for ordering liquidation.
After the liquidation order is passed by NCLT, they are required to issue a communal announcement that the company/ corporate debtor is in liquidation. They are also needed to send a copy of the order to authorities wherever such company/ corporate debtor is registered. Now, as soon as the liquidation process is initiated, a liquidator is appointed. Generally, the Resolution Professional at the time of CIRP acts as the liquidator after the order is passed by the NCLT for discharging the corporate debtor, and for this, the RP submits written consent. Here, the NCLT has the power to replace RP before the appointment of the liquidator, by some order:
- When the resolution plan is submitted by the RP under sec 30 of the Code is rejected for let-down to meet the needs under section 30(2);
- Where the IBBI suggests replacing the RP for some reasons in lettering;
- When the RP fails to give in to written agreement in section 34(1).
Now, as soon as the liquidator gets appointed, he makes a public announcement as given in Form B of Schedule-2 of the Regulation. From this announcement, the liquidator calls the stakeholders to submit the claims on the date of commencement of liquidation and shall declare the last date for such submissions. As per section 33(5) of the Code, no legal proceedings shall be carried upon by or in contradiction of corporate debtor after passing of liquidation order, subject to the provisions of section 52 of the Code. There’s an exception as well to this provision when the liquidator institutes these proceedings, in place of the corporate debtor, with the prior permission of NCLT.
As per section 33(6) of the Code, the order for liquidation shall be believed of being a notice discharging the workers, officers and employees of the company/ corporate debtor. The liquidation order should not have this kind of result when the corporate debtor is maintained as a going concern at the time of the process of liquidation by the liquidator.
Filing Proof of Claim
It is similar to the process of CIRP. Here the creditors of the corporate debtor undergoing the liquidation process are required to file a proof of claim after the announcement made by the liquidator publicly.
Now again the question arises, who can file proof of claim? The process is similar to that of CIRP. A proof of claim is filed by:
- Financial creditors,
- Operational creditors and
- Other Stakeholders.
The main intention or purpose of passing such a Code was to assimilate the corporate debtor in a way that it becomes skilled to carry on its disputes. The process of liquidation is not an alternative or excuse for the resolution process but it acts as a last resort if anyhow the resolution process is unsuccess. This has been held by the Hon’ble Courts and NCLAT that even while being in the middle of the liquidation process, the liquidator may time and again try to continue the business or trade of the company/ corporate debtor.
Author(s) Name: Shrishti Baranwal (Banasthali Vidyapith)