Realisation of Assets in Liquidation Proceedings under Insolvency and Bankruptcy Code 2016 (IBC)

Liquidation Process
Realisation of Assets in Liquidation Proceedings

Realisation of Assets in Liquidation Proceedings

I. Sale of Assets, etc. [LP Reg.-32 & 32A]

Situation -I: Sale as a Going Concern

  • Where the committee of creditors has recommended or where the liquidator is of the opinion that sale as a going concern shall maximise the value of the corporate debtor, he shall endeavour to first sell:
    1. the corporate debtor as a going concern; or [clause (e) of LP Reg. 32]
    2. the business(s) of the corporate debtor as a going concern.[clause (f) of LP Reg. 32]
  • The group of assets and liabilities of the corporate debtor, as identified by the committee of creditors under sub-regulation (2) of regulation 39C of the CIRP Regulations, 2016 shall be sold as a going concern. Where the committee of creditors has not identified the assets and liabilities under sub-regulation (2) of regulation 39C of the CIRP Regulations, 2016, the liquidator shall identify and group the assets and liabilities to be sold as a going concern, in consultation with the consultation committee.

 

Situation -II: Liquidator unable to sell business as a going concern:

If the liquidator is unable to sell the corporate debtor or its business s a going concern [under clause (e) or (f) of regulation 32] within 90 days from the liquidation commencement date, he shall proceed to sell the assets of the corporate debtor as under:

(a) an asset on a standalone basis; [clause (a) of LP Reg. 32]

(b) the assets in a slump sale; [clause (b) of LP Reg. 32]

(c) a set of assets collectively; [clause (c) of LP Reg. 32]

(d) the assets in parcels; [clause (d) of LP Reg. 32]

 

Note: where an asset is subject to security interest, it shall not be sold under any of the situation (I&II) unless the security interest therein has been relinquished to the liquidation estate.

 

II. Mode of sale [LP Reg.-33]

1. Through an auction

The liquidator shall ordinarily sell the assets of the corporate debtor through an auction in the manner specified in Schedule I.

2. Private sale

  • The liquidator may sell the assets of the corporate debtor by means of private sale in the manner specified in Schedule I when-

(a) the asset is perishable;

(b) the asset is likely to deteriorate in value significantly if not sold immediately;

(c) the asset is sold at a price higher than the reserve price of a failed auction; or

(d) the prior permission of the Adjudicating Authority has been obtained for such sale:

  • The liquidator shall not sell the assets, without prior permission of the Adjudicating Authority, by way of private sale to-

(a) a related party of the corporate debtor;

(b) his related party; or

(c) any professional appointed by him.

 

3. The liquidator shall not proceed with the sale of an asset if he has reason to believe that there is any collusion between the buyers, or the corporate debtor’s related parties and buyers, or the creditors and the buyer, and shall submit a report to the Adjudicating Authority in this regard, seeking appropriate orders against the colluding parties.

 

III. Asset memorandum [LP Reg.-34]

1. Time Limit

On forming the liquidation estate under section 36, the liquidator shall prepare an asset memorandum in accordance with this Regulation within 75 days from the liquidation commencement date.

2. Assets which are intended to be realized by way of sale

The asset memorandum shall provide the following details in respect of the assets which are intended to be realized by way of sale-

(a) value of the asset, valued in accordance with Regulation 35;

(b) value of the assets or business(s) under clauses (b) to (f) of regulation 32, valued in accordance with regulation 35, if intended to be sold under those clauses;

(c) intended manner of sale in accordance with Regulation 32, and reasons for the same;

(d) the intended mode of sale and reasons for the same in accordance with Regulation 33;

(e) expected amount of realization from sale; and

(f) any other information that may be relevant for the sale of the asset.

3. Other asset

The asset memorandum shall provide the following details in respect of each of the assets other than those assets which are intended to be realized by way of sale-

(a) value of the asset;

(b) intended manner and mode of realization, and reasons for the same;

(c) expected amount of realization; and

(d) any other information that may be relevant for the realization of the asset.

 

4. Filing and restricted accessibility

The liquidator shall file the asset memorandum along with the preliminary report to the Adjudicating Authority. The asset memorandum shall not be accessible to any person during the course of liquidation, unless permitted by the Adjudicating Authority.

 

IV. Valuation of assets or business intended to be sold [LP Reg.-35]

1. Valuation conducted during CIRP or Fast Track CIRP

Where the valuation has been conducted under regulation 35 of the CIRP Regulations, 2016 or regulation 34 of the Fast Track CIRP Regulations, 2017, as the case may be, the liquidator shall consider the average of the estimates of the values arrived under those provisions for the purposes of valuations under these regulations.

2. Valuation not conducted during CIRP or Fast Track CIRP

i. Appoint of Registered Valuer

The liquidator shall within 7 days of the liquidation commencement date, appoint two registered valuers to determine the realisable value of the assets or businesses under clauses (a) to (f) of regulation 32 of the corporate debtor:

a. in cases where valuation has not been conducted during CIRP or fast track CIRP or

b. where the liquidator is of the opinion that fresh valuation is required under the circumstances.

ii. Ineligibility of a Registered Valuer

Following persons shall not be appointed as registered valuers, namely:-

(a) a relative of the liquidator;

(b) a related party of the corporate debtor;

(c) an auditor of the corporate debtor at any time during the five years preceding the insolvency commencement date; or

(d) a partner or director of the insolvency professional entity of which the liquidator is a partner or director.

iii. Valuation Reports

The Registered Valuers shall independently submit to the liquidator the estimates of realisable value of the assets or businesses, as the case may be, computed in accordance with the Companies (Registered Valuers and Valuation) Rules, 2017, after physical verification of the assets of the corporate debtor.

iv.. Value of the asset or businesses

The average of two estimates received under sub-regulation (3) shall be taken as the value of the assets or businesses.

 

V. Asset sale report [LP Reg. 36]

 On sale of an asset, the liquidator shall prepare an asset sale report in respect of said asset, to be enclosed with the Progress Reports, containing –

(a) the realized value;

(b) cost of realization, if any;

(c) the manner and mode of sale;

(d) if the value realized is less than the value in the asset memorandum, the reasons for the same;

(e) the person to whom the sale is made; and

(f) any other details of the sale.

 

VI. Realization of security interest by secured creditor [LP Reg.-37]

Refer 

VII. Distribution of unsold assets [LP Reg.-38]

The liquidator may, with the permission of the Adjudicating Authority, distribute amongst the stakeholders, an asset that cannot be readily or advantageously sold due to its peculiar nature or other special circumstances. The application seeking permission of the Adjudicating Authority shall-

(a) identify the asset;

(b) provide a value of the asset;

(c) detail the efforts made to sell the asset, if any; and

(d) provide reasons for such distribution.

 

VIII. Recovery of monies due [LP Reg-39]

The liquidator shall endeavor to recover and realize all assets of and dues to the corporate debtor in a time-bound manner for maximization of value for the stakeholders.

 

IX. Realize uncalled capital or unpaid capital contribution [LP Reg.-40]

Power to call and realize the uncalled capital

  • The liquidator shall realize any amount due from any contributory to the corporate debtor.
  • Notwithstanding any charge or encumbrance on the uncalled capital of the corporate debtor, the liquidator shall be entitled to call and realize the uncalled capital of the corporate debtor and to collect the arrears, if any, due on calls made prior to the liquidation, by providing a notice to the contributory to make the payments within 15 days from the receipt of the notice, but shall hold all moneys so realized subject to the rights, if any, of the holder of any such charge or encumbrance.
  • No distribution shall be made to a contributory, unless he makes his contribution to the uncalled or unpaid capital as required in the constitutional documents of the corporate debtor.

Note:

1. As per Regulation 2(1)(c), contributory means a member of the company, a partner of the limited liability partnership, and any other person liable to contribute towards the assets of the corporate debtor in the event of its liquidation;

2. For the purpose of this chapter and Schedule I, ‘assets’ include an asset, all assets, a set of assets or parcel of assets, business, as the case may be, which are being sold.

 

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