IBC | Legislative Alert | Liquidation Regulations amended | Scope of liquidation cost clarified | Sale of corporate debtor as going concern


Corporate & Commercial

The Insolvency and Bankruptcy Board of India (“IBBI”) has amended the IBBI (Liquidation Process) Regulations, 2016 (“Liquidation Regulations”) vide the IBBI (Liquidation Process) (Amendment) Regulations, 2018 (“Amendment Regulations”) (available here) effective from 1 April 2018, to amend the Liquidation Regulations to inter alia provide for:

1. Liquidation cost | Ingredients clarified as lot of corporate debtors approach liquidation

As per the provisions of the Insolvency and Bankruptcy Code, 2016 (“Code”), the proceeds from the sale of the liquidation assets shall be distributed in an order of priority, amongst which the insolvency resolution process costs and the liquidation costs constitute the first priority. The Code has merely given an indicative definition of the term “liquidation cost” to mean any cost incurred by the liquidator during the period of liquidation subject to such regulations, as may be specified by the IBBI.

With a lot of companies moving towards liquidation, in order to ascertain what will constitute liquidation cost, now the IBBI has vide the Amendment Regulations, provided that “liquidation cost” means-

a. fee payable to the liquidator under regulation 4 of the Liquidation Regulations;
b. remuneration payable by the liquidator under regulation 7 of the Liquidation Regulations;
c. cost incurred by the liquidator under regulation 24 of the Liquidation Regulations; and
d. interest on interim finance for a period of twelve (12) months or for the period from the liquidation commencement date till repayment of interim finance, whichever is lower.

2. Sale of corporate debtor as going concern allowed
As per the Amendment Regulations, the liquidator has been given the power to sell the corporate debtor as a going concern. Before this amendment, the liquidator could (a) sell an asset on a standalone basis; or (b) sell (i) the assets in a slump sale, (ii) a set of assets collectively, or (iii) the assets in parcels.