IBBI moots amendments for upright liquidation process

In a bid to increase transparency in the liquidation process under the Insolvency and Bankruptcy Code (IBC), IBBI has proposed amendments to the regulations. In a discussion paper, the Insolvency and Bankruptcy Board of India (IBBI) noted that the regulatory framework of liquidation process has been improvised on several occasions during the last five years to address the difficulties faced by stakeholders, meet the evolving requirements and in aid of achievement of objectives of the Code.

"With the emergence of new issues and the gaining of sufficient experience, a need is felt to further strengthen the regulatory framework of liquidation process in terms of accountability of liquidator towards stakeholders and certain matters related to sale," it said.

The Code and IBBI (Liquidation Process) Regulations, 2016, provide that the liquidator shall carry on the business of the corporate debtor for its beneficial liquidation, exercise all powers of its board of directors, key managerial personnel and the partners, complies with applicable laws on behalf of the firm, among others. The liquidator exercises the powers in fiduciary capacity to protect the interest of stakeholders and as an officer of the court. The liquidator is expected to imbibe the highest standards of ethics and professionalism while conducting a fair and rule-based liquidation process. It is pertinent to note that though the liquidator has been empowered with greater autonomy during liquidation process as compared to interim resolution professional (IRP) or resolution professional (RP) during CIRP (corporate insolvency resolution process), the accountability mechanisms are not as robust, IBBI said.

It leads to ineffective participation and dissatisfaction amongst stakeholders, information asymmetry and sometimes even abuse of the process and the effective participation and information symmetry are fundamental to robust supervision and monitoring of the process.

"A need is, therefore, felt to further enhance the accountability of liquidator by enlarging the scope of consultation with stakeholders," said the discussion paper. The board was of the view that the expanded and enriched role of Stakeholders' Consultation Committee (SCC) in terms of mandatory consultation regarding appointment of professionals, sale of assets including fixation of reserve price, among others, is felt necessitated for enhancing accountability of liquidator, stakeholders' confidence and participation in the process, effective supervision and monitoring, and improved outcomes of the process.