Insolvency and Bankruptcy Board of India (IBBI) Issues Norms for corporate voluntary liquidation

The Insolvency and Bankruptcy Board of India (IBBI) has issued regulations pertaining to the voluntary liquidation process for corporate persons.

The regulation, which will come into force on April 1, 2017, lays down the process from initiation of voluntary liquidation of a corporate person till its dissolution.

The corporate person, for the purpose of this regulation, would include companies, limited liability partnerships and any other person incorporated with limited liability.

Initiating proceedings

A corporate person may initiate a voluntary liquidation proceeding if majority of the directors or designated partners of the corporate person make a declaration to the effect that: the corporate person has no debt or it will be able to pay its debts in full from the proceeds of the assets to be sold under the proposed liquidation; and the corporate person is not being liquidated to defraud any person.

If the liquidator is of the opinion that the liquidation is being done to defraud a person or the corporate person will not be able to pay its debts in full from the proceeds of assets to be sold in the liquidation, he shall make an application to the Adjudicating Authority to suspend the process of liquidation and pass any such orders as it deems fit, an official release said. 

Liquidator

The regulations prohibit an insolvency professional from acting as a liquidator for a corporate person if he is not independent of the corporate person. 

It prohibits partners or directors of an insolvency professional entity of which the insolvency professional is a partner or director from representing other stakeholders in the same liquidation process.

The regulations oblige the liquidator, and professional(s) assisting him in liquidation to make disclosures — initial and continuing — about pecuniary or personal relationship with any of the stakeholders or the corporate person.

The norms specify the manner and content of public announcement, receipt and verification of claims of stakeholders, reports and registers to be maintained, preserved and submitted by the liquidator, realisation of assets and distribution of proceeds to stakeholders, distribution of residual assets, and finally dissolution of corporate person.

According to the norms, a liquidator has to preserve a physical or an electronic copy of the reports, registers and books of accounts for at least eight years after the dissolution of the corporate person, either with himself or with an information utility, the release added