In a bid to increase transparency in the liquidation process under the Insolvency and Bankruptcy Code (IBC), IBBI (Insolvency and Bankruptcy Board of India) has proposed amendments to the regulations.
In a discussion paper, IBBI noted that the regulatory framework of liquidation process has been improvised on several occasions during the past five years to address the difficulties faced by stakeholders, meet the evolving requirements and in aid of achievement of objectives of the Code.
"With the emergence of new issues and the gaining of sufficient experience, a need is felt to further strengthen the regulatory framework of liquidation process in terms of accountability of liquidator towards stakeholders and certain matters related to sale," it said.
The Code and IBBI (Liquidation Process) Regulations, 2016, provide that the liquidator shall carry on the business of the corporate debtor for its beneficial liquidation, exercise all powers of its board of directors, key managerial personnel and the partners, complies with applicable laws on behalf of the firm, among others.
The liquidator exercises the powers in fiduciary capacity to protect the interest of stakeholders and as an officer of the court. The liquidator is expected to imbibe the highest standards of ethics and professionalism while conducting a fair and rule-based liquidation process.
It is pertinent to note that though the liquidator has been empowered with greater autonomy during liquidation process compared to interim resolution professional (IRP) or resolution professional (RP) during CIRP (corporate insolvency resolution process), the accountability mechanisms are not as robust, IBBI said.
It leads to ineffective participation and dissatisfaction amongst stakeholders, information asymmetry and, sometimes, even abuse of the process and the effective participation and information symmetry are fundamental to robust supervision and monitoring of the process.
"A need is, therefore, felt to further enhance the accountability of liquidator by enlarging the scope of consultation with stakeholders," said the discussion paper.
The board was of the view that the expanded and enriched role of stakeholders' consultation committee (SCC) in terms of mandatory consultation regarding appointment of professionals, sale of assets including fixation of reserve price, among others, is felt necessitated for enhancing accountability of liquidator, stakeholders' confidence and participation in the process, effective supervision and monitoring, and improved outcomes of the process.
Further, the appropriate checks & balances in appointment of professionals, without curtailing the flexibility of liquidators in such appointments, is apposite to ensure more process transparency and safeguard the interest of the stakeholders.
"It is proposed to provide in the liquidation regulations that the liquidator shall consult SCC for all significant matters related to liquidation process, including appointment of professionals (and their remuneration), and sale of assets (including major aspects such as fixation of reserve price, manner of sale, etc)," it said.
The discussion paper has also proposed to provide in the liquidation regulations that if the secured creditors having 60 per cent of the value in the secured debt decide to relinquish or realise the security interest, such decision shall be binding on the other 'pari-passu' charge holders, who are on an equal footing.
"The proposals in the preceding paragraphs aim at achieving the objectives of the Code by expediting the liquidation process and balancing the interest of all stakeholders. This is issued in pursuance to regulation 4 of the Insolvency and Bankruptcy Board of India (Mechanism for Issuing Regulations) Regulations, 2018," it said.
Public comments on the proposals have been sought by September 17.
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