Analysis of Amendments in the Voluntary Liquidation Process

Insolvency and Bankruptcy Board of India has amended IBBI (Voluntary Liquidation Process) Regulations, 2017 on August 5, 2020, by notifying IBBI (Voluntary Liquidation Process) (Second Amendment) Regulations, 2020.

IBC, 2016 enables Corporate Person (CP) to initiate voluntary liquidation process if it is solvent and have no malicious intent to defraud creditors verified by affidavit but does not empowers it to appoint Insolvency Professional as a liquidator u/Reg 5.

For which Reg 5 is amended via this Amt Reg, 2020, entitling an expansive power of CP appointing and replacing the Liquidator as per eligibility requirements in Reg 6 by passing Board Resolution followed by Special Resolution by members within 4 weeks of BR u/Reg 3(c)(1). The Resolution shall specify T&C of appointment including remuneration. The liquidator shall intimate to IBBI (Board) within 3 days of appointment.

The board shall maintain a corporate person-wise ledger of the separate a/c “Corporate Voluntary Liquidation Account” (a/c) in the scheduled bank, in the Public Accounts of India constituted under article 266(2) of COI and get it audited annually and audit report shall be forwarded to Central Government.

Where liquidator shall deposit and take a receipt of unclaimed dividends, undistributed proceeds, any income earned thereon till the date of deposit before submitting an application for dissolution of CP and Final Report. If any liquidator is holding any such amount before commencing of this Amt Reg, 2020 shall deposit within 15days in the a/c.

The liquidator shall submit the evidence of deposit like a bank statement, the resolution passed for the same etc., a statement in Form-G setting forth the nature of the amount deposited into the a/c, and the names and last known addresses of the stakeholders entitled to receive the unclaimed dividends or undistributed proceeds with authority with which the CP is registered and Board.

Stakeholders claiming the amount may apply in Form-H or submit evidence satisfying the Board for an order for the withdrawal of the amount and if the amount remains unclaimed for 15 years, it shall be transferred to Consolidation Fund of India (CFI).

Analysis

This amendment has centralized the power and benefits in the hands of few influentials like Central Govt. and Directors of the Company, here they have extensive power to influence the liquidator. Unclaimed funds shall be transferred to CFI rather than Investor Education Protection Fund (IEPF) or Insolvency and Bankruptcy Fund established u/s 244 of IBC, 2016 where the funds will be assorted and will get out of the track, utilization of which will be handled by the government rather for the benefit of the investors who are worthy of it. IBBI has to submit the audit report to CG, where there is no involvement of a third party to keep a check. Receipts are also issued by Board rather than RBI.

Before amendment along with unclaimed dividends and undistributed profits, balance payable to stakeholders on the date of dissolution was transferred to the Companies Liquidation Account. The amendment has a lacuna since the income of the company earned later than the date of deposit i.e. date of creation of Account as per understanding, but left unclear by the Amendment is unaccounted. Neither it is kept track of nor liquidator is held liable for any retention of funds as before where he was charged 12% interest and penalty as determined.