Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Amendment Regulations 2022

The Insolvency and Bankruptcy Board (IBBI) vide notification dated 5th April 2022 has notified the Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Amendment Regulations 2022. This new law was introduced to provide a mechanism for the voluntary liquidation of solvent corporate persons. The key highlights of the IBBI (Voluntary Liquidation Process) Amendment Regulations 2022 are summarized in this article. For more details on the Insolvency and Bankruptcy Code, 2016, click here

The gist of IBBI (Voluntary Liquidation Process) Amendment Regulations 2022

The Budget 2022 had laid down the intent to fast track the voluntary liquidation process to provide greater flexibility to entities that desire to exit the business. In pursuance of that, the Insolvency and Bankruptcy Board of India released a discussion paper along with draft regulations for public comments in February 2022. After that, IBBI has now notified the Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Amendment Regulations 2022.

Voluntary Liquidation Process

Voluntary Liquidation or Voluntary Winding up of a company in India is administered under the Insolvency and Bankruptcy Code, 2016 applies to ‘a corporate person’. Voluntary Liquidation is the process of liquidating a company with the approval of its members. A company usually goes for a voluntary liquidation when its members decide not to continue its business operations. The main objective is to discontinue the operations and distribute its assets while also paying its debts. For more details on Voluntary Liquidation of Corporate Persons, click here

Key highlights of the IBBI (Voluntary Liquidation Process) Amendment Regulations 2022

There has been a substantial delay in the completion of the voluntary liquidation process, though the process, in general, involves nil or negligible claims of creditors, fewer assets, if any, to be realized and few litigations, if any, to be concluded. To curtail such delay and ensure faster exit for firms, the Amendment Regulations modify timelines for some stipulated activities undertaken during the process. Modified timelines for some stipulated activities undertaken during the Process are as follows:

Intimation of appointment of liquidator to IBBI
Timeline for preparation of stakeholders list reduced
Timeline for distribution of proceeds to stakeholders reduced
Completion of voluntary liquidation
Submission of compliance certificate along with the final report by Liquidator

Liquidation of Corporate Debtors Under Insolvency and Bankruptcy Code, click here

Intimation of appointment of liquidator to IBBI

The liquidator is required to intimate his appointment to IBBI within seven days from the date of his appointment compared to an earlier three-day timeline.

Timeline for preparation of stakeholders list reduced

A proviso to sub-regulation (2) of regulation 30 is added in Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017 under which if no claims are received till the last day of submission of a claim, the The liquidator must prepare the list of stakeholders within 15 days (against the previously stipulated forty-five days) from the last date for receipt of claims.

Timeline for distribution of proceeds to stakeholders reduced

Also, the liquidator must distribute the proceeds from realization within 30 days (against the previously stipulated six months) from the receipt of the amount to the stakeholders.4

Completion of voluntary liquidation

Timeline for completion of voluntary liquidation revised as follows:

The new Amendment Regulations 2022 prescribe 270 day limit for completion of a corporate liquidation, in cases where creditor approval has been received for the commencement of liquidation;
The liquidator shall endeavor to complete liquidation within 90 days from commencement in all other cases.

Submission of compliance certificate along with the final report by Liquidator

To provide a summary of actions taken by the liquidator during the voluntary liquidation process, the new Regulations 2022 specify a compliance certificate which is required to be submitted along with an application under section 59(7) to the Adjudicating Authority, by the liquidator.

Compliance certificate in Form H

The liquidator is now required to furnish a compliance certificate in Form H along with the final report in an application to the Tribunal.

The

compliance certificate in Form H is reproduced below for reference:

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The compliance certificate contains a summary of the voluntary liquidation process, including the time taken for various actions by the liquidator (against the prescribed time limit), details of receipts and payment during the process, etc. A compliance certificate shall facilitate the Adjudicating Authority to adjudicate dissolution applications expeditiously.

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Frequently Asked Questions

Common questions about Voluntary Liquidation Process Amendment Regulations 2022.

The Voluntary Liquidation Process is a mechanism for solvent corporate persons to wind up their business operations voluntarily with the approval of their members. It is a process of liquidating a company by distributing its assets and paying its debts, with the objective of discontinuing business operations.

The IBBI (Voluntary Liquidation Process) Amendment Regulations 2022 were introduced to fast-track the voluntary liquidation process and provide greater flexibility to entities that desire to exit the business. The amendment aims to curtail delays and ensure a faster exit for firms by modifying timelines for certain activities undertaken during the process.

The key changes introduced by the amendment regulations include a revised timeline for the preparation of the stakeholders' list, a shortened timeline for the distribution of proceeds to stakeholders, a revised timeline for the completion of voluntary liquidation, and the requirement for the liquidator to submit a compliance certificate along with the final report.

If no claims are received till the last day of submission, the liquidator must prepare the list of stakeholders within 15 days from the last date for receipt of claims, as opposed to the previously stipulated 45 days.

The liquidator must distribute the proceeds from realization within 30 days from the receipt of the amount to the stakeholders, as compared to the previously stipulated six months.

The amendment regulations prescribe a 270-day limit for completing a corporate liquidation in cases where creditor approval has been received for the commencement of liquidation. In all other cases, the liquidator shall endeavor to complete liquidation within 90 days from commencement.

The liquidator is now required to furnish a compliance certificate in Form H along with the final report in an application to the Tribunal. The compliance certificate provides a summary of the voluntary liquidation process, including the time taken for various actions by the liquidator, details of receipts and payments during the process, etc. This certificate will facilitate the Adjudicating Authority to adjudicate dissolution applications expeditiously.

The liquidator is required to intimate their appointment to the IBBI within seven days from the date of appointment, as compared to the earlier three-day timeline.

The Voluntary Liquidation Process under the Insolvency and Bankruptcy Code, 2016, applies to 'a corporate person,' which includes companies, limited liability partnerships, and any other persons incorporated with limited liability under any law for the time being in force.

The main objective of the Voluntary Liquidation Process is to discontinue the operations of a solvent corporate person by distributing its assets and paying its debts, thereby allowing the entity to exit the business voluntarily with the approval of its members.