When a law is enacted, the intent with which it gets enacted is made loud and clear by the law maker. Thereafter judiciary takes it course in case of interpretation of statute. Nowadays it seems to be a head on between judiciary and law maker. These clearly gets reflected by amendments which are made to overrule the judicial pronouncement.
The speech by Ms. Nirmala Sitaraman at rajya Sabha while debating on IBC amendment clearly spelled the beans.she said that due to lack of clarification the interpretation of certain sections were not as per intent of lawmaker and there was a need to clarify said section/ regulations.
IBC during last two and half years has been tested on various grounds and has very proactively been regulated by regulator, judiciary and ministry.
Corporate insolvency resolution process has gone through various challenges and more or less now the said process has set. Several landmark judgement has provided guidance in understanding the intent of law.
Now stage is all set for testing liquidation process. Matters where CIRP failed in last two and half years have entered liquidation.
Lawmaker in consultation with stake holders have recently amended liquidation process.
The concept of `CONSULTATION COMMITTEE has been now introduced
CONSULTATION COMMITTEE means the stakeholders’ consultation committee constituted under sub-regulation (1) of regulation 31A. Views of committee are directory in nature. Liquidator has to take views of committee but incase he differs he can take his own view and record reasons for it.
The definition of Liquidation Cost has been enlarged by including the following 4 new clauses:-
1.costs incurred by the liquidator for preserving and protecting the assets, properties, effects and actionable claims, including secured assets, of the corporate debtor;
2 costs incurred by the liquidator in carrying on the business of the corporate debtor as a going concern;
3 the amount repayable to contributories under sub-regulation (3) of regulation 2A;
4 any other cost incurred by the liquidator which is essential for completing the liquidation process.
However if any cost incurred by the liquidator in relation to compromise or arrangement under section 230 of the Companies Act, 2013 (18 of 2013) shall be excluded.
By above amendment liquidator fees can be fixed plus variable, which is welcome move for liquidator. Now liquidator will have cover for fixed expense.
New sub regulation 2A has been added whereas it has been asked to financial creditors to contribute the excess of the liquidation costs over the liquid assets of the corporate debtor, as estimated by liquidator in proportion of debts to them in an escrow account within 7 days.Another welcome move for liquidator as incase of no asset available to cover liquidation cost now FC will have to contribute as per there share.
New sub regulation 2A has been added whereas to complete the compromise or arrangement is proposed under section 230 of the Companies Act, 2013 (18 of 2013) within 90 days only and this period shall not be included in the liquidation period. The cost shall be borne by C.D. or parties purposing compromise as per regulation 2B (3).These will be tested as IBC has no regulation for compromise and process whereby CD can come out of liquidation.
The biggest change has been brought by amending regulation 44 whereas Liquidator has to complete Liquidation within period of 1 year instead of earlier 2 years. These would be a challenge for liquidator to sell off asset and distribute within given timeline.
New regulation 47 has been added prescribing time line during Liquidation Another challenge for liquidator to follow prescribed timeline.
Schedule 1 paragraph 1 sub clause 4 has been amended to facilitate reduction of reserve price by 10 % in all subsequent auctions. These amendment may be biggest deterrent in adhering prescribed timeline. Today major issues in CIRP and Liquidation is getting proper valuation of the asset and enterprise.Till standards in valuation and proper guidance to valuer is provided, valuation under IBC is always going to be challenge.
Have tried to analyse certain amendments, hope it may be useful.
CA SNEHAL KAMDAR
Managing Trustee
IP Foundation.
About IP Foundation
IP Foundation is a charitable trust formed with a intention to create awareness on Insolvency and Bankruptcy Code. It intend to be a think tank on IBC and do research and come out with various white paper on related topics.
It is founded by CA Snehal Kamdar, managing Trustee and has a support of advisor to trust:
CA Adv. Ashish Makhija
CA Dr. Gautam shah
IP Foundation till now has taken following intiatives:
1. Legal intiative: conducting IP clinics. Intends to conduct every month from September, 2019.
2. Data dissemination intiative:
Collecting views from various stakeholders and sending representation to regulator and ministry.
3. Health care intiative:
Tied up with CNC healthcare Pvt Ltd for special health package specially designed for IP.
4. Financial inclusion intiative:
IP Foundation is talks with banks for designing working capital product specifically for IP.
5. Knowledge sharing intiative:
Supported publication of ” Reference Guide on Insolvency and Bankruptcy Code”
Holding Study group meeting every month.
Have opened chapter at Nagpur and very soon opening chapter at Ahmedabad and Pune.