The Insolvency and Bankruptcy Board of India (IBBI) introduced the IBBI (Voluntary Liquidation Process) (Amendment) Regulations, 2024 on 31st January, 2024. The amendment aims to make the process of voluntary liquidation of a company a smoother and a more transparent process. The amendment comprehensively addresses the procedural requirements for the pending legal proceedings disclosures, stakeholders meeting, progress reporting and distribution of various funds.
The changes have been made to redress the past anomalies in VL timelines and Contributories meeting and reporting requirements in sync for better efficiency and transparency in the Voluntary Liquidation process.
Here’s a detailed analysis of the key modifications:
Imagine a scenario where a corporate person is undergoing a voluntary liquidation process, but there are pending proceedings or assessments before statutory authorities and pending litigations concerning the corporate person. Wouldn’t it be crucial for all stakeholders to be aware of these? The amendment thought so too.
Regulation 3 (1) (b) has been amended to include sub-clause (iii), adding a new disclosure about pending proceedings or assessments before statutory authorities and pending litigations concerning the corporate person. This ensures transparency and comprehensive reporting of legal matters that may impact the voluntary liquidation process, costs and timelines.
In another scenario considering the corporate person does have any pending matters or litigations before any authority and there are obligations arising from the pending matters.
The question arises – “Has the corporate person made sufficient provisions for these obligations?”
In Regulation 3 (1) (a), a new sub-clause (iii) has been added, requiring the corporate person to make sufficient provision for obligations arising from pending matters mentioned in sub-clause (iii) of clause (b) as mentioned above. This emphasizes the need for adequate provisions to meet pending obligations during the voluntary liquidation process so that Liquidator does not get constrained to suspend liquidation due to insufficiency of funds at a later stage.
It’s a known fact that the process of VL of a corporate person can sometimes extend beyond the expected timeframe provided in the act and VL regulations. To ensure the stakeholders are kept in the loop, the amendment made a significant change to Regulation 37.
Originally, if the Voluntary Liquidation (VL) process wasn’t completed within 12 months, the liquidator had to hold a meeting of contributories within 15 days of every 12 months until the dissolution application was submitted.
However, the 2022 amendment changed the VL completion time to 270 days (if creditors approved the resolution) or 90 days (in all other cases) but there was no corresponding change in the timelines for contributories’ meeting. If the liquidation wasn’t completed in these timeframes, when should the liquidator hold the contributories’ meeting, shouldn’t liquidator inform contributories after the said 270 days or 90 days, as the case may be, or should he/ she wait for the completion of 12 months, appeared unreasoned and unjustifiable.
This 2022 amendment aimed at increasing the efficiency of the VL process. However, it created an anomaly. The VL process by 2022 amendment had specified new timelines of 270 or 90 days, but the contributories were only required to be updated after 12 months. This discrepancy was addressed in the 2024 amendment. Though we have seen that many Liquidators follow a transparent process of sending a detailed Monthly Status Reports to the stakeholders keeping them apprised of the developments and the factors responsible for the delay in the completion of Liquidation within the timelines prescribed
The 2024 amendment has now synchronized the timelines. Now, the liquidator has to hold a meeting of contributories within 15 days from the end of the 270 or 90-day period and thereafter within 15 days of every 270 or 90 days, as the case may be. This ensures more frequent meetings until the dissolution application is submitted, enhancing the transparency and efficiency of the process.
Earlier the reporting in VL process was not structured and only the IP/Liquidator were reporting as and when was asked by the IBBI for the updation of records through an excel sheet which used to get sent to IP/ Liquidator maintained by the VL Division of IBBI from time to time besides the Final report.
With the 2024 amendment, it aims to structure the reporting process by the IP/Liquidator within fixed timelines.
A new sub-regulation (4) has been added to Regulation 37, requiring the liquidator to file a Status Report with the Board within seven days of the contributories’ meeting. This ensures timely reporting and updates to the regulatory authority regarding the progress and status of the voluntary liquidation process.
Regulation 39 deals with the Corporate Voluntary Liquidation Account. This account maintained by IBBI is where all the unclaimed dividends or undistributed proceeds, etc, due to stakeholders during the voluntary liquidation process are deposited.
The 2024 amendment introduced sub-regulations (7) to (7E) to Regulation 39, which outline a structured process for stakeholders to claim their entitlement to amounts deposited into the Corporate Voluntary Liquidation Account only through Liquidator prior to the dissolution of the corporate person in Form-I instead of approaching directly to IBBI.
Here’s how the process works prior to the dissolution:
Another important change is that stakeholders can now seek withdrawal even after the dissolution of the corporate person. This means that stakeholders who did not file claims during the liquidation process still have a chance to receive their dues. However, post dissolution, the stakeholder needs to approach IBBI only for such claims in Form – I for claiming amounts from Corporate Voluntary Liquidation Account.
Further, if the person claiming is other than the stakeholder and claims to be entitled for an amount, such person is required to submit evidence to satisfy Liquidator or the Board (IBBI) for the claimed amount.
One of the significant changes brought about by the amendment is that the Board’s involvement is now mandatory in releasing funds. This adds an extra layer of oversight to the process, ensuring that the funds are correctly distributed. These changes aim to bring in more propriety and make the process of claiming and distributing funds more efficient and transparent, ensuring that all stakeholders receive what they are entitled to.
To conclude, the Insolvency and Bankruptcy Board of India (IBBI) introduced the IBBI (Voluntary Liquidation Process) (Amendment) Regulations, 2024 on 31st January, 2024, with the purpose of correcting anomalies and improving transparency in the Voluntary Liquidation process. A true strength of a legislation is transparency with stakeholders, a true sign of a Developed Country, which is sought to be achieved by these amendments.
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