Appointment of liquidator
According to regulation 5 of the Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017, an insolvency professional shall not be appointed by a corporate person if he is not eligible under Regulation 6. The resolution for appointment shall contain the terms and conditions of the appointment of the liquidator, including the remuneration payable to him.
According to regulation 7, the remuneration payable to the liquidator shall form part of the liquidation cost.
Eligibility of Insolvency Professional
According to sub – regulation (1) of regulation 6, an insolvency professional shall be eligible to be appointed as a liquidator if he, and every partner or director of the insolvency professional entity of which he is a partner or director is independent of the corporate person.
There is no requirement for insolvency professional to be independent of the creditors.
According to sub – regulation (2) of regulation 6, an insolvency professional shall not be eligible to be appointed as a liquidator if he, or the insolvency professional entity of which he is a partner or director, is under a restraint order of the Board.
Independence of Insolvency professional
According to explanation to regulation 6(1), a person shall be considered independent of the corporate person, if he-
(a) is eligible to be appointed as an independent director on the board of the corporate person under section 149 of the Companies Act, 2013 (18 of 2013), where the corporate person is a company;
(b) is not a related party of the corporate person; or
(c) has not been an employee or proprietor or a partner-
(i) of a firm of auditors or company secretaries or cost auditors of the corporate person; or
(ii) of a legal or a consulting firm, that has or had any transaction with the corporate person contributing ten per cent or more of the gross turnover of such firm, at any time in the last three years.
According to sub – regulation (3) of regulation 6, liquidator shall disclose the existence of any pecuniary or personal relationship with the concerned corporate person or any of its stakeholders as soon as he becomes aware of it, to the Board and the Registrar. According to regulation 2(1)(f), the stakeholders entitled to proceeds from the sale of liquidation assets under section 53.
According to sub – regulation (4) of regulation 6, an insolvency professional shall not continue as a liquidator if the insolvency professional entity of which he is a director or partner, or any other partner or director of such insolvency professional entity represents any other stakeholder in the same liquidation.
Reporting by liquidator
According to sub – regulation (1) of regulation 8, the liquidator shall prepare and submit-
(a) Preliminary Report;
(b) Annual Status Report;
(c) Minutes of consultations with stakeholders; and
(d) Final Report
in the manner specified under these Regulations.
Copy of reports/minutes to stakeholders
According to sub – regulation (1) of regulation 8, the liquidator shall make the reports and minutes available to a stakeholder in either electronic or physical form, on receipt of-
(a) an application in writing;
(b) cost of making such reports available to it; and
(c) an undertaking from the stakeholder that it shall maintain confidentiality of such reports and shall not use these to cause an undue gain or undue loss to itself or any other person.
According to regulation 9, the liquidator shall submit a Preliminary Report to the corporate person within forty five days from the liquidation commencement date, detailing-
(a) the capital structure of the corporate person;
(b) the estimates of its assets and liabilities as on the liquidation commencement date based on the books of the corporate person.
(c) Whether he intends to make any further inquiry in to any matter relating to the promotion, formation or failure of the corporate person or the conduct of the business thereof; and
(d) the proposed plan of action for carrying out the liquidation, including the timeline within which he proposes to carry it out and the estimated liquidation costs.
According to proviso to clause (b) of regulation 9, while preparing estimates of assets and liabilities, if the liquidator has reasons to believe, to be recorded in writing, that the books of the corporate person are not reliable, he shall also provide such estimates based on reliable records and data otherwise available to him.
Registers, books of account and Receipts
According to sub –regulation (1) of regulation 10, where the books of account of the corporate person are incomplete on the liquidation commencement date, the liquidator shall have them completed and brought up-to-date, with all convenient speed.
According to sub – regulation (2) of regulation 10, the liquidator shall maintain these registers and books, as may be applicable, in relation to the liquidation of the corporate debtor; (a) Cash Book; (b) Ledger; (c) Bank Ledger; (d) Register of Fixed Assets and Inventories; (e) Securities and Investment Register; Register of Book Debts and Outstanding Debts; (g) Tenants Ledger; (h) Suits Register; (i) Decree Register; (j) Register of Claims and dividends; (k) Contributories Ledger; (l) Distributions Register; (m) Fee Register; (n) Suspense Register; (o) Documents Register; (p) Books Register; (q) Register of unclaimed dividends and undistributed properties deposited in accordance with Regulation 39; and (r) such other books or registers as may be necessary to account for transactions entered into by him in relation to the corporate debtor. According to sub – regulation (3), the registers and books may be maintained in the forms indicated in Schedule II, with such modifications as the liquidator may deem fit in the facts and circumstances of the liquidation.
According to sub – regulation (4), the liquidator shall keep receipts for all payments made or expenses incurred by him.
Engagement of professionals
According to regulation 11, a liquidator may engage professionals to assist him in the discharge of his duties, obligations and functions for a reasonable remuneration and such remuneration shall form part of the liquidation cost. Such professional shall not be his relative, is a related party of the corporate person or has served as an auditor to the corporate person at any time during the five years preceding the liquidation commencement date.
A professional engaged or proposed to be engaged under sub-regulation (1) shall disclose the existence of any pecuniary or personal relationship with any of the stakeholders, or the corporate person as soon as he becomes aware of it, to the liquidator.
According to regulation 14, the liquidator shall make a public announcement in Form A of Schedule I within five days from his appointment. The public announcement shall
(a) call upon stakeholders to submit their claims as on the liquidation commencement date; and
(b) provide the last date for submission of claim, which shall be thirty days from the liquidation commencement date.
The announcement shall be published –
(a) in one English and one regional language newspaper with wide circulation at the location of the registered office and principal office, if any, of the corporate person and any other location where in the opinion of the liquidator, the corporate person conducts material business operations;
(b) on the website, if any, of the corporate person; and
(c) on the website, if any, designated by the Board for this purpose.
Consultation with stakeholders
According to sub – regulation (2) of regulation 12, the liquidator shall maintain the particulars of any consultation with the stakeholders made under this Regulation. According to section 35(2) of the code, the liquidator shall have the power to consult any of the stakeholders entitled to a distribution of proceeds under section 53. According to sub – regulation (1) of regulation 12, the stakeholders consulted under section 35(2) shall extend all assistance and cooperation to the liquidator to complete the liquidation of the corporate person.
Extortionate credit transactions
According to section 50 of the code, where the corporate debtor has been a party to an extortionate credit transaction involving the receipt of financial or operational debt during the period within two years preceding the insolvency commencement date, the liquidator may make an application for avoidance of such transaction to the Adjudicating Authority if the terms of such transaction required exorbitant payments to be made by the corporate debtor.
According to regulation 13, a transaction shall be considered an extortionate credit transaction, where the terms –
(a) require the corporate person to make exorbitant payments in respect of the credit provided; or
(b) are unconscionable under the principles of law relating to contracts.