IBBI Proposes Changes To Strengthen Liquidation Process, Seeks Comments by 10th November
Moneylife Digital Team 01 November 2023
To address new emerging issues in the liquidation process, the Insolvency and Bankruptcy Board of India (IBBI) has issued a discussion paper to strengthen the framework for certain matters related to sale, reserve price, monitoring private sale, listing of all assets in a platform, circulation of progress reports to stakeholders, consultations with stakeholders' consultation committee (SCC) and accountability of liquidator towards stakeholders.
IBBI says the proposed amendments would improve transparency in the auction process, thus resulting in higher realisation and expediting the process. "Listing of assets on a centralised platform would improve visibility of assets, reduce information asymmetry, and simplify the process for potential bidders. Increased involvement of the SCC in the valuation process, auction process, private sale and the receipt of progress reports would result in better monitoring of the process."
The framework suggests that the auction notice should provide that prospective bidders would undertake that they are eligible under Section 29A of the Insolvency and Bankruptcy Code (IBC) to participate in the auction process and also the liquidator should, within three days of declaration of the highest bidder (H1), conduct due diligence and verification of the eligibility of the bidder, who stood as the H1 bidder.
Noting that in several instances, the reserve price is being reduced by the maximum permissible limit of 25% at the instance of first failure of an auction, instead of taking a staggered and nuanced approach of reducing the reserve price in steps, IBBI proposes deletion of clause (4A) from schedule I which shall ensure that the reserve price in an auction is reduced by maximum 10% at a time.
The board further recommends that regulation 33(2) may be amended to provide that the liquidator may sell the assets of the corporate debtor (CD) by means of private sale only after prior consultation with the SCC and the successful buyer should also be confirmed after such consultation. 
Though regulation 15 of the liquidation regulations provides for submitting progress reports to the adjudicating authority and the board, it does not get shared with the key stakeholders of the ecosystem, i.e., creditors, creating information asymmetry. IBBI suggests that regulation 15 may be amended to provide that the progress reports should also be shared with the SCC and that the liquidator would be mandated to hold meetings of the SCC in such a way that the interval between two consecutive meetings does not exceed 30 days. 
Regarding withdrawal from a corporate liquidation account, the board recommends that where a request for withdrawal is received from the claimant, the Board will direct the liquidator in all such cases where a dissolution order or process closure order has not been passed, for verification of the claim, including checking the legitimacy of the claim, the amount involved, and any other relevant details. Post- verification, the liquidator will submit their findings and opinion to the IBBI to enable it to permit withdrawal even before dissolution, the discussion paper says.
The discussion paper on strengthening the liquidation process lays down 16 proposals and invites comments from the public and stakeholders by 10 November 2023. For providing comments, visit the IBBI website, www.ibbi.gov.in, select 'public comments' and then select 'Discussion paper – Liquidation Process October 2023'.
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