IBBI amendments on liquidation process to boost transparency, efficiency of insolvency framework

06 Feb 2025 Evaluate

The Insolvency and Bankruptcy Board of India (IBBI) has amended regulations on liquidation process to ensure better fund management, simplify the auction procedure, and improving reporting requirements. These measures will improve transparency, efficiency, and accountability in the insolvency framework. According to IBBI release, the amendments, notified on January 28, 2025, with immediate effect, modify the Insolvency and Bankruptcy Board of India (Liquidation Process) regulations, 2016, and the Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) rules, 2017.

Under the revised framework, the prospective bidders in the liquidation auction will now have more time -- 30 days to participate in the auction process than 14 days earlier, facilitating wider participation. Further, the liquidator is mandated to verify the eligibility of the highest bidder within three days of the auction and consult with the Stakeholder Consultation Committee (SCC) before finalising the auction. If the highest bidder is found ineligible, the next highest eligible bidder may be considered. Additionally, the auction notice must specify that the Earnest Money Deposit (EMD) of the successful bidder will be forfeited if found ineligible.

Maintaining the Corporate Liquidation Account and Corporate Voluntary Liquidation Account with scheduled banks for more efficient claim processing, the board has strengthened fund management mechanisms. With the revised framework the voluntary liquidation processes can be completed even though the uncalled capital exists, as existing safeguards are considered sufficient to protect creditors.

The board said ‘Regulations now require detailed disclosure of tax deductions by the liquidator before depositing unclaimed dividends and undistributed proceeds into the corporate liquidation account or corporate voluntary liquidation account’. Additionally, Forms have been updated to include fields for applicable provisions, tax deduction confirmation, reasons for unclaimed dividends or undistributed proceeds. The amendments also introduce a late fee of Rs 500 per form per month for delayed filings on the IBBI portal, ensuring timely compliance by insolvency professionals.

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