In the regime of insolvency, the frameworks change as per the challenges. It provides verified financial information for a quick process. Section 59 deals with voluntary liquidation. The corporate person’s liquidation process is not defaulting, and they remain silent on the midway closure. The companies act, of 2013 does not pay the way for voluntary winding up. The corporates get powers from tribunals and courts to wind up the corporates. The liquidator appointed should be an independent person and not a related party to the corporate person. He should not be an employee or partner or proprietor. He should not be a person who has received the restraint order of the board. Recently, ICMAI and IBBI have arranged for a zoom meeting for a national conclave on the profession and practice of valuation. On February 11th, 2022 the ICMAI institute in association with IBBI, constituted the webinar about the need for valuation models with automation. These programs are provided to equip the valuation industry and promote the recovery cases from liquidation. The changes are made and explained with examples. The stakeholders need changes as per the time. The information asymmetry, ineffective participation and dissatisfaction lead to difficult scenarios. IBBI proposes to balance the interest of the stakeholders and expedite the liquidation process. This blog engages the readers with information about the changes in the liquidation framework.
What is voluntary liquidation?
Voluntary liquidation is decided by the leaders of the company or by a court order. It is the self-planned dissolution approved by the shareholders. In India, the priority is to pay the due amount to the creditors and close the financial affairs in an orderly manner. If the company struggle to operate in the future, the shareholders and the directors opt for voluntary liquidation. There are five types of liquidation. Complete liquidation, partial liquidation, creditor induced liquidation, voluntary liquidation, and government-induced liquidation are the five types of liquidation. The company name, goodwill, and client base are sold to the other business. After liquidating, the directors can purchase the old assets and start a new business. In the digital age, there is a demand for a single window to resolve the problems in the voluntary liquidation process.
The challenges with voluntary liquidation are as follows:
• The timeline for liquidation is not strict. Almost half of the companies take one year for liquidation.
• The ROCs wait for the STK-2 form and then publish the news of liquidation in the newspaper in English language and vernacular language.
• RoC demands the re-submission of the documents. After the submission of the indemnity bond and affidavit, the Roc raise objections. The objections are overruled by the documents related to the liquidation. There is no standard model for the affidavit.
• There are conflicts with the timelines prescribed by the IBBI and the income tax act. IBBI prescribe for thirty days, and the Income-tax act prescribes for three months. So, the liquidator needs to plan the timelines properly.
• NCLT has 16 benches all over India. The central government operate the NCLT benches. In certain cases, the NOC is demanded by the NCLT bench from RoC. The NCLT bench has no standard guidelines.
• Some liquidators face problems with the banks for opening the liquidation bank account. The existing account of the business needs to be closed, and a new account has to be opened for the liquidation process.
The new amendment in voluntary liquidation:
On 5th May 2016, the IBBI was empowered by the LokSabha. The entities handling the insolvency process are IP, insolvency professional agencies, and information utilities. The new amendments framed timelines for stipulated activities. The proceeds are transferred to the stakeholders by the liquidator after 30 days. The period before the amendment was six months. The period taken to prepare the stakeholders list by the liquidator is allowed 15 days. The timeline allotted for the actions is under discussion, and the discussion paper was on public comment till February 22. The early exit is the goal of the effective liquidation process. This helps for releasing the resources faster. If the claims of the creditors do not reach the liquidator, he prepares the list of stakeholders within 15 days. The final report submission stretches up to 90 days for the cases where the claims are not received from creditors. The submission of the final report for companies with claims from creditors stretches up to 270 days. The liquidator needs to calculate the final report date from the date of commencement of liquidation. He needs to follow the timelines for the final report. The amendment would reduce the stress on AA. The key details of the voluntary liquidation process are viewed by the board and government. It is a rich source of information. So, it is essential to present the information in a summary format.
Special care to MSME industries:
The honourable finance minister NirmalaSitharaman raised the threshold for concluding insolvency from one lakh to one crore for the MSME industry. The pre-package announced by the government to the MSME industry allows the creditors and shareholders of the MSME units to find the potential buyer. They need to prepare a resolution plan before approaching the tribunal.
The cross-border resolution:
The cross-border resolution is based on the model law of UNCITRAL. Section 59 of IBC and section 248 of Companies act, 2013 guide the insolvency matters. IBC also clarified the no-objection certificate from the income tax department. In more than 50 countries around the world, the model law on the cross border is in practice. The law with Indian interests is accompanied by public policy and national security. Fifty-four jurisdictions around the world are following the model of UNCITRAL. In the UK, the decision-making process for pre-packed insolvency regulations needs to be submitted. The buyer’s details are essential information to be disclosed. In the US, the debtors need to enter an agreement with creditors for an insolvency plan. The creditors accept two-thirds of the value in the dollar and half in the creditor’s voting.
Conclusion:
The starting stage of the resolution must include transparency. The transparency helps for the recovery. Everybody should vote for the debtor. There should be no back door dealings. Voting is essential to pass the resolution. The raw data of the resolution help in understanding the insolvency regime.