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What Is The Role of a Liquidator When a Company Is Insolvent?

What Is The Role of a Liquidator When a Company Is Insolvent

Role of a Liquidator When a Company Is Insolvent?

Looking For Effective Procedure of Recovery of Bad Debt?

When it comes to reclaiming your money from a debtor, it turns into a herculean task if the debtor evades or dodges you. If the defaulter is a corporate debtor who owes you more than one lakh rupees, as a financial or operational creditor, then there are ways to take professional help in dealing with such defaulters.

The Insolvency and Bankruptcy Code, 2016, (IBC), is a tool that has been worked out to overcome the perils of a fragmented legal system and transited to a unified IBC that aims to expedite the entire process effectively.

How To Initiate Insolvency Against Corporate Debtor?

Part II of the I&B Code, 2016, enumerates the insolvency resolution and liquidation process under IBC of corporate persons. The fundamental requisite for this process is the initiation application that may be filed by the Financial Creditor or the Operational Creditor.

The creditor has to establish that:

  • a default has occurred;
  •  the debtor owes the debt; and,
  • the debt had been legally assigned to the debtor and transferred.

The name of the resolution professional has to be proposed along with the application.

From Insolvency To Liquidation

Within 14 days of submitting the duly filled application to the NCLT, it shall be accepted and the corporate insolvency process shall begin from that date. The appointed Insolvency Resolution Professional (IRP) is bestowed with various powers and has to overlook as well as coordinate all the functionality as well as the legality of the insolvent company.

The liquidation of a company can occur, if:

  • any time during the insolvency resolution process, 75% members of the creditor’s committee resolve to liquidate it;
  • the creditor’s committee fails to finalize a resolution within the stipulated 180 days;
  • the resolution plan submitted by the committee is rejected by the NCLT;
  • the corporate debtor contravenes resolution plan provisions; or
  • the tribunal passes an order for the company’s compulsory liquidation.

Once the liquidation order is passed a moratorium is imposed on the corporate debtor and his assets & the company’s liquidation process begins.

Role of a Liquidator Is Most Vital!

A Liquidator is then appointed by the committee of creditors, who is the main force in bringing it to a logical conclusion. Generally, the resolution professional looking over the insolvency of the company is acts as the liquidator, unless NCLT directs otherwise.

Playing the most pivotal role in the process, it is but obvious that a liquidator has to perform many duties in an impartial and judicious manner, in accumulating and assessing the assets of the debtor and eventually, selling them off to settle the debts of the creditors.

Duties of A Liquidator!

He is duty-bound to:

  1. Assess the claims made by creditors
  2. Act as a communicator
  3. Undertake genuine valuation of assets
  4. Ensure the sale of assets at the best price
  5. Equitable distribution of funds among creditors
  6. Play an investigative role in comprehending the affairs of the debtor company

Apart from these, there are personal attributes that are mandated in a liquidator. It is obligatory for him to be adept with the necessary skills. He should investigate and act with complete impartiality and due diligence. In the process of liquidation, he has to take utmost care that his personal interests do not ever come in conflict with professional interests. The foremost concern should be to act in the best interest of the creditors.

“A radical simplification in the process of insolvency & bankruptcy has been adopted by IBC to bring problems like bad debts, to a conclusive end, within a stipulated time.”
-Shweta Gupta, Founder, and CEO, MUDS

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