Liquidation

Liquidation is defined as a process by which the life of a company is brought to an end in legal terms,
after which it will be properly administered by a liquidator for the benefit of its creditors, members, and
other stakeholders.

The entire procedure of bringing a lawful end to the life of a company can be divided into the liquidation
process (liquidation) followed by the dissolution of the CD (corporate debtor)

GROUNDS FOR INITIATING LIQUIDATION

Section 33 of the IBC provides grounds for liquidation of a CD that had defaulted and hence undergone a
CIRP.

1. does not receive a resolution plan under section 30(6)- to AA

2. where the AA rejects the resolution plan under section 31 of the IBC for non-compliance of the
requirements
3. where the RP, at any time during the CIRP, but before approval of the resolution plan by the CoC,
lets the AA know of the decision of the CoC to liquidate the CD (PEHLE HE COC SE APPROVAL MIL
GAYA) - approved by not less than 66 percent of the voting share.
4. where there has been a contravention in the implementation of the resolution plan as approved
by the AA

COMMENCEMENT OF PROCEEDING

section 31(2) of the IBC:

1. pass an order to be liquidated as per the provisions of Chapter III of the IBC (a “liquidation
order”);
2. issue a public announcement stating that the CD is in liquidation; and
3. require such an order to be sent to the authority with which the CD is registered.

CONSEQUENCES OF THE LIQUIDATIO

1. No suit or legal proceedings- As per section 33(5) of the IBC, subject to section 52, when a
liquidation order has been passed, no suit or legal proceeding can be instituted by or against the
CD. Hence, a limited moratorium is also available in the liquidation process
2. Discharge of officers, employees or workers- discharge to the CD’s officers, employees, and
workers, except when the CD’s business is continued during the liquidation process by the
liquidator.

1) Appointment of the Liquidator - Section 34 of the IBC provides that where the AA passes the
liquidation order under Section 33 of the IBC, the RP appointed under a CIRP shall thereafter act as
the liquidator’
section 34(4) of the Code requires the AA to replace the RP if:
 (a) the resolution plan submitted by the RP was rejected for failure to meet the mandatory
requirements
(b) the IBBI recommends to the AA that the RP should be replaced
(c) the RP fails to submit his written consent to act as a liquidator

the AA may direct the IBBI to propose the name of another IP to be appointed as liquidator and the
board shall propose it, along with the written consent from the proposed IP, within 10 days

2) public announcement- The announcement is to be made using Form B of Schedule II, within five
days of his appointment.
The public announcement is required to provide the last date for submission or updating of claims
by the stakeholders, which shall be within thirty days of the LCD. The public announcement is
required to be published via all three of the following:
• in one English and one regional language newspaper with wide circulation at the location of the
registered office and principal office
; • on the website, if any, of the CD; and
• on the IBBI website.
3) Claim Submission and Proof- Section 38 provides that the liquidator shall receive or collect the
claims of creditors within a period of 30 days from the date of the LCD.
Creditors may withdraw or vary their claims within 14 days of such submission. As per regulation 21
of the Liquidation Process Regulations
4) Verification of Claims- The liquidator shall verify the claims submitted within thirty days of the last
date for receipt of claims and may either admit or reject the claim.
5) Admission or Rejection of Claims- Section 40 of the IBC provides that the liquidator may, after
verification of claims, either admit or reject the claim, in whole or in part. Where he rejects a claim,
the reasons for such a rejection must be recorded in writing. The liquidator is required to
communicate his decision of admission or rejection of claims to the creditor and the CD within seven
days.
6) Appeal Under section 42, a creditor may appeal to the AA against the liquidator’s decision to accept
or reject a claim within 14 days of receiving the decision.
7) Priority of claims After the corporate debtor goes into liquidation, not all the creditors are treated
equally in respect of their claims. There are a few claims which are given priority while distributing
the assets.
financial creditors are given priority over the operational creditors as both of them do not share the
same relationship with the corporate debtor

8) Distribution of Assets by the Liquidator- distributed to the stakeholders, before bringing the life of
the CD to an end by way of dissolution.
9) Dissolution Of Corporate Debtor- Where the assets of the CD have been completely liquidated, the
liquidator shall make an application to the AA for the dissolution of such CD under Section 54 of the
Code. Early dissolution can be applied for under Regulation 14 of the Liquidation Regulations any
time after preliminary report is prepared.

As per Regulation 47 of the Liquidation Regulations, the liquidation proceedings should be completed
within 1 year from the date of initiation of liquidation, as opposed to the extendable time limit of 330
days for the resolution process.
POWER AND DUTIES OF A LIQUIDATOR

verify claims of all the creditors,

take into custody and control all the assets, property, and actionable claims of the CD,

evaluate the assets and property of the CD in the manner as may be specified by the IBBI, and prepare a
report in this regard

take measures to protect and preserve the assets and properties of the CD,

carry on the business of the CD for its beneficial liquidation as he considers necessary, and

conduct sale of the immovable and movable property and actionable claims of the CD by public auction
or private contract

 to draw, accept, make and endorse any negotiable instruments on behalf of the
corporate debtor, with the same effect as if such instruments were drawn, accepted,
made or endorsed by or on behalf of the corporate debtor in the ordinary course of its
business;
 to take out, in his official name, letter of administration to any deceased contributory
and to do in his official name any other act necessary for obtaining payment of any
money due and payable from a contributory or his estate which cannot be ordinarily
done in the name of the corporate debtor, and in all such cases, the money due and
payable shall, for the purpose of enabling the liquidator to take out the letter of
administration or recover the money, be deemed to be due to the liquidator himself;
 to obtain any professional assistance, in the discharge of his duties, obligations and
responsibilities;
 to invite and settle claims of creditors and claimants and distribute proceeds in
accordance with the provisions of this Code;
 to institute or defend any suit, prosecution or other legal proceedings, civil or criminal,
in the name of on behalf of the corporate debtor;
 to investigate the financial affairs of the corporate debtor to determine undervalued
or preferential transactions;
 to take all such actions, steps, or to sign, execute and verify any paper, deed, receipt
document, application, petition, affidavit, bond or instrument and for such purpose to
use the common seal, if any, as may be necessary for liquidation, distribution of assets
and in discharge of his duties and obligations and functions as liquidator;
 to apply to the Adjudicating Authority for such orders or directions as may be
necessary and to report the progress of the liquidation process in a manner as may be
specified by the Board; and
 to perform such other functions as may be specified by the Board.