IBBI amends voluntary liquidation norms, unclaimed dividends to go to CVLA

A liquidator will have to deposit unclaimed dividends and undistributed proceeds in a separate account before seeking dissolution of a corporate debtor under the voluntary liquidation process, according to the IBBI.
The Insolvency and Bankruptcy Board of India (IBBI) has notified changes to the voluntary liquidation process regulations.

With the amendments, a liquidator has to deposit unclaimed dividends and undistributed proceeds in a liquidation process along with any income earned thereon into the Corporate Voluntary Liquidation Account (CVLA) before submission of an application for dissolution of the corporate person, a release said on Thursday.
The amendments also provide a process for a stakeholder to seek withdrawal from the Corporate Voluntary Liquidation Account.
The IBBI would operate and maintain the account in the Public Accounts of India.
"A liquidator, who fails to deposit any amount into the Corporate Voluntary Liquidation Account under this regulation, shall deposit the same along with interest thereon at the rate of twelve per cent per annum from the due date of deposit till the date of deposit," as per the regulations.
Amount deposited with the account that remains unclaimed or undistributed for 15 years from the date of dissolution of the corporate person would be transferred to the Consolidated Fund of India.
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Changes in IBBI norms bar re-entry of ex-promoters in cos under liquidation

The amendments in the IBBIregulations will prevent backdoor entry of former promoters in companies under liquidation by covering the "loopholes" in the law and are in line with the objective of the Insolvency and Bankruptcy Code (IBC), experts said.
The Insolvency and Bankruptcy Board of India (IBBI) has amended the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 and the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016.

Under the amendments introduced to the liquidation process regulations, persons who were ineligible are now barred from being part of any compromise or arrangement at the stage of liquidation. Furthermore, a secured creditor who chooses to sell secured assets independently also cannot sell the same to a person who is ineligible under the IBC.
"This has been introduced to specifically overrule the decisions passed by some NCLTs, whereby it was held that no bar operated on the sale of secured assets to the ex-promoters of the Corporate Debtor, if such sale is carried out by a secured creditor under Section 52 of the IBC," said PunitDutt Tyagi, Executive Partner, Lakshmikumaran and Sridharan Attorneys.
Rachit Sharma, DGM, Taxmann said the new amendment to IBC norms restricts secured creditors from selling or transferring assets of a liquidating - company to any person who is not eligible to submit an insolvency resolution plan.
"With the new amendment, the legislature has not left any loophole which could allow the ex-promoters and other ineligible persons to buy the stressed asset or even participate in a scheme of arrangement," he said.
According to him, the law makers' intent are very clear, not only does the law bar the ex-promoters from participation under the Code, it now goes on to bar sale outside liquidation process also.
The amendment is in line with the intent of the Section 29A of Code preventing any sort of re-entry of ex-promoters at any point of resolution/liquidation process, he said.
Another legal expert, L Viswanathan, Partner, Cyril Amarchand Mangaldas, said the changes in the regulations "is in line with the objective of the IBC" to disallow persons who are disqualified from submitting a resolution plan from re-acquiring the company through the mechanism of a scheme or in enforcement of security interests by secured creditors.
In fact, the amendment goes further to provide that such persons "shall not be a party in any manner to such compromise or arrangement thereby even possibly disenfranchising such persons also from being eligible to vote as members on any scheme of compromise or arrangement", Viswanathan said.
Mehul Bheda, Partner, Dhruva Advisors LLP was of the opinion that the amendments have been introduced to bring liquidation on par with the resolution process. The restrictions placed on the promoters under Section 29A of the code are now equally applicable to liquidation.
"This means that no promoter, who is barred from the resolution process, can make a backdoor entry by buying the assets of the company under liquidation or even participating in a scheme of arrangement under Section 230," Bheda added.
The IBC is the bankruptcy law which seeks to consolidate the existing framework by creating a single law for insolvency and bankruptcy.

IBC resolutions exceed new time limit of 330 days prescribed by govt

The average time taken for completion of 156 CIRPs that have yielded resolution plans has overshot the government's revised deadline of 330 days for completion of the process.
According to the Insolvency and Bankruptcy Board of India (IBBI) data, till September 2019, 156 CIRPs have yielded resolutions and the average time taken for resolution, including the time excluded by the adjudicating authority (AA) is 374 days; if the time excluded by the AA is considered then the average time taken would stand at 347 days. Either way, the time taken for resolution is more than the government's revised deadline of 330 days.

In July, in a bid to expedite the resolution process, the government made amendments to the Insolvency and Bankruptcy Code (IBC) that included revising the time limit to 330 days. The amendments though passed by the Parliament are facing a legal challenge in the Supreme Court by operational creditors to Essar Steel.
The outside time limit for resolutions earlier was 270 days. In many cases however that timeline had been breached largely due to litigation from different stakeholders. In most cases, insolvency courts had excluded the time period of litigation.
ICRA vice president, Abhishek Dafria, said, CIRPs, on an average, continue to take more than the initial 270-day timeline and exceed even the revised 330-day timeline.
As on September 30, 2019, 535 of the 1,497 onging CIRPs had exceeded the 270-day timeline; 324 had exceeded 180 days but were within 270-day timeframe. The total number of cases admitted were 2,542.
chart"The increasing number of cases being admitted challenges the NCLT infrastructure to close cases in a timely manner. CIRPs that are ongoing have reached an all-time high with close to 1,500 as at the end of September 2019," said Dafria.
While the average time taken is 374 days, there are cases from the RBI's first list of NPAs mandated for resolution under the IBC that have now been dragging for more than two years like Essar Steel and Bhushan Power & Steel. Essar Steel was admitted on August 2, 2017 and Bhushan Power on July 26, 2017.
Insolvency professional, Sumit Binani, said that timely resolution was one of the basic objectives of the Code. "The timeline was revised as it was not being maintained. The amended maximum resolution time limit of 330 days which includes the litigation period would ensure that the two important pillars of the Code i.e. the resolution professional and the adjudicating authority take timely steps to complete the process," he said.
Binani pointed out that the infrastructure was also being beefed up to gear up to the new timeline. More members had been added, new places and newer buildings were being looked at so that more courts could be added.
"There would also be separate benches for NCLAT in all metros with the first coming up in Chennai," he said.
If the resolution process is not completed within 330 days, then an order would be passed for liquidation. The average time taken for completion of 156 CIRPs that have yielded orders for liquidation however is 300 days.
About 56.17 per cent of the CIRPs that were closed ended in liquidation compared to 14.93 per cent ending with a resolution plan. However, 72.86 per cent CIRPs ending in liquidation were earlier with the BIFR or defunct.