IBBI amends regulations of liquidation process

Published: August 7, 2020

The Insolvency and Bankruptcy Board of India has amended the regulations for the liquidation process of companies. Now a liquidator will only be paid based on the amount they have done, in terms of the amount realized or distributed among the lenders.

The Existing Practice

As of now, if a company goes into liquidation under the Insolvency and Bankruptcy Code, the Committee of Creditors is tasked with deciding the fees of the liquidator apart from hiring them. There is no hard and fast rule or guideline regarding the maximum fee that should be paid to the appointed liquidator.

The Significance of the New Guidelines

IBBI has clarified now that where a liquidator realizes any amount but does not distribute the same, he shall be entitled to the fees as per the amount realized by him only. It was necessary to address the issues arising out of cases involving multiple liquidators. Another issue used to be that the liquidator had to be replaced as he fell sick or passed away midway in the process.

Voluntary Liquidation Process

IBBI has also made changes for voluntary liquidation process in order to allow replacement in the process through a resolution of members or partners or contributors. It was not acceptable as per the earlier regulations. Now, the corporate person may replace the liquidator by appointing another person as liquidator.

Insolvency and Bankruptcy Board of India (IBBI)

It was established as the regulator of the insolvency proceedings in the country and it also regulates the entities such as the Insolvency Professional, Insolvency Professional Agencies and Information Utilities in the country. Established in 2016, it derives its authority from the Insolvency and Bankruptcy Code. The main aim is to improve the Ease of Doing Business Ranking of the country by providing an easy route to exit the business.

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