LIQUIDATION OF PROCEEDS

AND DISTRIBUTION
UNDER IBC, 2016
GROUP MEMBERS: FAHAD HASHMAT, TANWEER AHAMED, ISAAC LALLAWMSANGA,
DITSHA DHAR
◦ Liquidation is the process of ending a company's
financial and economic operations.
◦ In a winding up, all of the company's assets and
property are allocated among creditors according
to the outstanding debt, and if any excess money
exists, it is distributed among members,
shareholders, owners, and others according to their
rights.
◦ The board of directors must select an INTRODUCTION
administrative person known as a liquidator to
oversee these activities. The company's name is
struck off the register of companies after all of
these procedures.
◦ When a firm becomes insolvent or bankrupt, the
liquidator is usually appointed. He assumes control
of all the organization's assets, properties, and
people after his appointment. He is legally
authorized to operate on behalf of the corporation
in various roles.
COMPULSORY
LIQUIDATION
TYPES OF
VOLUNTARY
LIQUIDATION
LIQUIDATION
CREDITORS
VOLUNTARY
LIQUIDATION
 ◦ The first step in resolving a business insolvency is to try
everything feasible to revive and restart the company.
This is normally accomplished by putting together and
enforcing a “resolution plan” If that doesn't work out, the
next step is liquidation.
◦ The Insolvency and Bankruptcy Code was enacted in
2016.
LIQUIDATION ◦ The Code was enacted primarily to consolidate and
reform the current legal framework for insolvent and
UNDER IBC, bankrupt persons reorganization and resolution.
◦In the case of Swiss Ribbons Pvt. Ltd. & Anr. v. Union
2016 of India & Ors, the Supreme Court held that the Preamble
makes no mention of liquidation, which is only used as a
last resort if there is either no resolution plan or the
resolution plans submitted are inadequate. Even during
liquidation, the liquidator can sell the corporate debtor's
business as a going concern. Swiss Ribbons Pvt. Ltd. &
Anr. v. Union of India & Ors, 2019 SCC OnLine SC 73.
 ◦ Only an insolvency professional, as well as every partner or
director of the insolvency professional entity to which he or
she belongs, is entitled to be appointed as a liquidator.
◦ The person should also be eligible for appointment as an

ELIGIBILITY independent director of a corporate debtor under Section 149

of the Companies Act, 2013.

OF A ◦ The eligible person should not have been an employee,

proprietor, or partner of corporate debtor's auditors,
LIQUIDATOR secretarial auditors, or cost auditors in the previous three
financial years, or a legal or consulting company

UNDER contributing more than 10% of such firm's gross turnover in

the previous three financial years. IBBI (Liquidation

IBC,2016 Process) Regulations, 2016 [Regulation 3(1)]

◦ Any financial or personal link with the corporate debtor
must be disclosed by the person who is to be appointed as a
liquidator. The person shall also not represent any other
investor in the same liquidation procedure.
◦ It's possible that the Resolution Professional isn't also the
liquidator in some cases.
In this case, the Hon’ble NCLAT held that the
Liquidator to proceed in accordance with law. He
will verify claims of all the creditors and take into
custody and control of all the assets, property,
S. C. Sekaran
effects and actionable claims of the corporate
debtor, carry on the business of the corporate
v. Amit Gupta
debtor for its beneficial liquidation etc. as
prescribed under Section 35 of the I&B Code.
& Ors
 ◦ The liquidator must prepare an asset memorandum in
accordance with the Liquidation Regulations within seventy-
five days of the liquidation commencement date after
forming the liquidation estate under section 36 of the Code.
The asset memorandum must include the following
information on the assets that will be sold:
1. The asset's worth, as determined under the Insolvency and
Bankruptcy Board of India (liquidation process)
ASSET Regulations, 2016, Regulation 35.
2. If intended to be sold under clauses (b) to (f) of regulation
MEMORANDUM 32, the value of the assets or business(s) under those
clauses, valued in accordance with regulation 35.
3. The intended manner of sale in accordance with
Regulation 32, and reasons for the same.
4. The intended mode of sale and reasons for the same in
accordance with Regulation 33.
5. The expected amount of realization from sale and any
other information that may be relevant for the sale of the
asset.
 The Order of Priority among Creditors established by
Section 53 of the Code will govern the order in which
outstanding debts will be repaid. This includes:
◦1. IRP and liquidation costs;
◦2. Workmen’s dues (for 24 months), and secured dues, if
the security has been relinquished;
PRIORITY OF ◦3. Employees dues (for 12 months);
DISTRIBUTION ◦4. Unsecured financial creditors;
◦5. Government dues, and unpaid dues to secured creditor,
if the security has been realized;
◦6. Remaining debts and dues (which include, unsecured
operational debts);
◦7. Preference shareholders;
◦8. Equity shareholders.
 ◦ The liquidator may not begin distribution until the list of
stakeholders and the asset memorandum have been lodged
with the Adjudicating Authority, subject to section 53.
◦ The liquidator must disperse the proceeds of realization to
the stakeholders within ninety days of receiving the money.
◦ Before the order of dissolution is passed under section 54(2),
the liquidator must apply to the Adjudicating Authority for
DISTRIBUTION an order to pay any unclaimed proceeds of liquidation,
undistributed assets, or any other balance payable to the
OF ASSET stakeholders.
◦ Any liquidator who keeps any money that should have been
paid into the Companies Liquidation Account under this
Regulation shall pay interest at a rate of 12% per year on the
amount held, as well as pay any penalty that the Board may
impose.
◦ A person claiming to be entitled to money paid into the
Companies Liquidation Account may apply to the Board for
an order for payment of the money claimed.
CONCLUSION

Liquidation of a firm occurs when it becomes insolvent and bankrupt as a

result of poorly handled business affairs and transactions, as well as a failure
to keep up with the trade market. When this circumstance arises, a firm must
dissolve itself through the liquidation process, either voluntarily or by
decision of the tribunal. The Supreme Court, the NCLTs, and the NCLATS
have all stated that resolution is the first order goal. The second order goal is
to maximize the value of the Corporate Debtor's assets, while the third order
goal is to promote entrepreneurship, credit availability, and interest balance.
This is a sacred sequence of goals.