The provisions dealing with the liquidation of corporate persons are imbibed in chapter III of part II of the Insolvency and Bankruptcy code.
We at MUDS on having a glance at chapter III derived the interpretation that liquidation process can be initiated only when the resolution plan as required to be submitted by the resolution professional is not received by the adjudicating authority or rejects the resolution plan due to non compliance of the specified requirements at any time before the expiry of maximum permitted period of corporate insolvency resolution process or fast track corporate insolvency resolution process.
The resolution professional appointed to conduct the corporate insolvency resolution process shall also act as liquidator for the corporate debtor. In order to avoid any ambiguity, the power and duties of the liquidator have been clearly stated in the chapter itself.
Initiation of Liquidation
In the situation where the adjudicating authority does not receive an approved resolution plan by the resolution professional before the expiry of insolvency resolution process period or the maximum permitted period for CIRP or fast track CIRP or the adjudicating authority rejects the received resolution plan due to non compliance of the specified requirements, then it may pass order for liquidation of corporate debtor along with issuing public announcement for the same.
The resolution professional can himself approach the adjudicating authority for seeking liquidation order against the corporate debtor on request of the committee of creditors at any time during the CIRP but before the confirmation of resolution plan.
Any person whose interest is significantly affected by the contravention of the corporate debtor can also make an application to adjudicating authority for seeking liquidation order against the concerned corporate debtor.
It is evident to note that once a liquidation order has been passed, there shall prevail a stay on all legal suits and proceedings by or against the corporate debtor.
Appointment of Liquidator
Once the order for liquidation is passed by the adjudicating authority, the resolution professional appointed for carrying out CIRP proceedings shall act as the liquidator also. Once the liquidator is appointed, the board of directors, KMP, and partners of the corporate debtor shall seize to have any control over the affairs of the business.
Replacement of Liquidator
The resolution professional who is acting as a liquidator can be replaced by an order passed by the adjudicating authority in the following cases:
- In the cases where a resolution plan submitted by resolution is rejected due to failure to meet the specified requirements.
- The replacement of resolution professional is recommended by the board to the adjudicating authority
The adjudicating authority would request the board to propose the name of insolvency professional who is replacing the existing liquidator. On receipt of the request from adjudicating authority, the board shall within 10 days propose the name of an insolvency professional who could replace the existing liquidator. The adjudicating authority shall thereafter appoint the proposed insolvency professional as the liquidator.
The liquidator after being appointed shall form a pool of the assets of the corporate debtor which will ultimately be used to settle the dues after liquidation to settle the claims. The pool of assets created out of the assets shall be called the liquidation estate. The liquidator shall hold this created pool in the capacity and position of a fiduciary for the benefits of the creditors. The provisions of the chapter clearly highlight the assets which shall be included and excluded in the liquidation estate.
Consolidation of Claims
After forming the liquidation estate, the liquidator shall receive and collate the claim from creditors within the duration of 30 days from the commencement of the liquidation process. Both the financial as well as the operational creditors would submit their claim to the liquidator as well as to the informational utility. Any creditor can withdraw his submitted claim within a period of 14 days, from the date of original submission of the claim.
Verification of Claims
The liquidator on receiving the claims from creditors shall verify them in the manner specified by the board. At the time of verifying the claims, the liquidator if feels that there is a requirement of additional documents from any creditor then the liquidator may ask the same from the concerned creditor.
Decision on the claim
After having verified the claims submitted by the creditors, the liquidator can either accept or reject the claim submitted in full or partly. At the time of rejecting the submitted claim, the liquidator shall give the reason for rejecting the submitted claim. After obtaining and verifying the received claims, the liquidator shall communicate his decision of accepting or rejecting the claim to the creditors and corporate debtor within 7 days of admission or rejection as is the case.
Determination of claim value
The liquidator after practicing the exhaustive decision-making exercise of admitting or rejecting the claim shall finally determine the final value of the claims admitted by it.
Appeal against the liquidator
Any creditor who feels offended by the decision of liquidator in terms of accepting or rejecting the claim submitted may appeal to the adjudicating authority with the time duration of 14 days. The time duration shall be counted from the date on which the decision of liquidator is received.
Role of secured creditors in the liquidation process
The secured creditors have a crucial role in the liquidation process. Accordingly, the secured creditor may relinquish his security interest to the liquidation estate and thereby receive the proceeds from the sale the concerned assets by the liquidator.
The secured creditor can also realize his security interest in the manner specified in the code. At the time of realizing the security interest, the concerned secured creditor shall intimate the same to the liquidator and accordingly identify the assets through which security interest shall be realized.
Distribution of assets on liquidation
Once the liquidation order is passed, the liquidation estate created shall be realized to pay off the creditors and settle the legal dues in relation to the liquidation process. The hierarchy for the distribution of assets on liquidation is as follows:
Dissolution of corporate Debtor
Once the assets of the corporate debtor have been liquidated, the liquidator shall finally make an application to adjudicating authority for the dissolution of the corporate debtor. The adjudicating authority on receipt of dissolution application order the dissolution of the corporate debtor from the very date on which it has passed the dissolution order in this regard.it shall be ensured that the dissolution order copy is filed with the concerned authority with which the corporate debtor is registered.
The above liquidation process will come into action only when the CIRP proceedings will fail to deliver the required output.
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