IBBI Discussion Paper on ‘Strengthening the Liquidation Process’

The Insolvency and Bankruptcy Board of India vide notification dated 20th October, 2023 has issued a Discussion Paper on ‘Strengthening the Liquidation Process’. The following proposals are provided in the paper:

Proposals regarding auction of assets of entity under liquidation:

1. The auction notice shall provide that the prospective bidders shall undertake that they are eligible under section 29A of the IBC, 2016 to participate in the auction process. It shall also provide that in case the bidder at any stage during the auction is found to be ineligible, his EMD shall stand forfeited by the liquidator.
2. To ensure confidentiality of the names of prospective bidders participating in the auction process, manner in which earnest money to be deposited by prospective bidder shall be notified through Circular by the Board.
3. The Liquidator shall within 3 days of declaration of H1 bidder conduct due diligence and verification of the eligibility of the bidder, who stood as the H1 (highest) bidder in the auction process.

Following proposals are also provided:

1. The liquidator shall place before the SCC for its consideration under regulation 31A the result of the auction, the details of the highest bidder, due diligence conducted by him on its eligibility and the result of such due diligence. In case the highest bid above reserve price is not acceptable for any reason to the liquidator, the consultation with SCC shall be mandatory.
2. Reserve price in an auction is reduced by maximum 10% at a time.
3. The liquidator may sell the assets of the Corporate Debtor by means of private sale only after the prior consultation with SCC and the successful buyer shall also be confirmed after such consultation.
4. The regulations may provide that the liquidator should list all assets of the CD as per the Asset Memorandum, on a listing platform in the manner to be notified by the Board, which would significantly improve the visibility of assets, reduce information asymmetry and simplify the process for potential bidders. Each asset listed should contain all material information about the assets such as status of attachment or lien, geographic coordinates, envisaged mode of sale and likely date of auction. By listing assets much earlier than the auction date, the process would ensure greater engagement for the prospective bidders and availability of more time with bidders for due diligence, leading to more competitive bidding. The progress reports shall also be shared with the SCC.
5. The Liquidator shall be mandated to hold meeting of the SCC in such a way that interval between two consecutive meetings does not exceed 30 days.
6. The Liquidator shall seek suggestions / observations of the SCC on the draft preliminary report and finalize it, after considering such suggestions / observations, and thereafter, submit it to the AA, Board and members of SCC.
7. The liquidator shall place before the SCC for its consideration under regulation 31A the result of the auction, the details of the highest bidder, due diligence conducted by him on its eligibility and the result of such due diligence. In case the highest bid above reserve price is not acceptable for any reason to the liquidator, the consultation with SCC shall be mandatory.
8. Reserve price in an auction is reduced by maximum 10% at a time.
9. The liquidator may sell the assets of the Corporate Debtor by means of private sale only after the prior consultation with SCC and the successful buyer shall also be confirmed after such consultation.
10. The regulations may provide that the liquidator should list all assets of the CD as per the Asset Memorandum, on a listing platform in the manner to be notified by the Board, which would significantly improve the visibility of assets, reduce information asymmetry and simplify the process for potential bidders. Each asset listed should contain all material information about the assets such as status of attachment or lien, geographic coordinates, envisaged mode of sale and likely date of auction. By listing assets much earlier than the auction date, the process would ensure greater engagement for the prospective bidders and availability of more time with bidders for due diligence, leading to more competitive bidding. The progress reports shall also be shared with the SCC.
11. The Liquidator shall be mandated to hold meeting of the SCC in such a way that interval between two consecutive meetings does not exceed 30 days.
12. The liquidator to place the reason for liquidation cost exceeding the estimates of liquidation cost before SCC and discuss ways to rationalise the same by presenting cost and benefits analysis of various expenses if it exceeds the estimated cost mentioned in the preliminary report or if it exceeds 10 percent of the liquidation value of the CD.
13. The liquidator shall facilitate a meeting wherein registered valuers shall explain the methodology being adopted to arrive at valuation, to the consultation committee before finalisation of valuation reports.
14. The Liquidator shall share the valuation report with the SCC members.
15. In all cases where the liquidator proposes to continue or initiate any legal proceeding before any authority, he shall seek the advice of the consultation committee, upon its reconstitution as per Regulation 31A, after presenting the economic rationale for the proposal. The consolidated status of all the legal proceedings shall be placed before the consultation committee in its every meeting.
16. In the event the running of business of the CD is economically unviable, the liquidator shall consult the SCC, to decide whether to keep the CD as a going concern or otherwise. In case, the SCC decides not to run the business of the CD as a going concern, the liquidator shall act as per the advice of SCC.
17. Where the liquidator is unable to sell the CD as a going concern though business of the CD is running as going concern, he shall inform the reason for such failure to SCC and seek its advice to review the marketing strategy already adopted for previous auctions, to attract potential bidders in future auctions.
18. A liquidator may assign assets underlying proceedings for preferential, undervalued, extortionate credit and fraudulent transactions referred to in sections 43 to 51 and section 66 of the Code even before the adjudication of such proceedings by the AA.
19. Before applying to the Adjudicating Authority for early dissolution under this regulation, the liquidator shall mandatorily consult the Stakeholder Consultation Committee (SCC) to seek their views and recommendations. The liquidator shall provide a detailed report of the consultation and the views of the SCC in the application to the Adjudicating Authority.
20. Where a request for withdrawal is received from the claimant, the Board shall direct the liquidator in all such cases where a dissolution order or process closure order has not been passed, for verification of the claim. This includes checking the legitimacy of the claim, the amount involved, and any other relevant details. Post verification, the liquidator shall submit their findings and opinion to the IBBI to enable it to permit withdrawal even before dissolution.