1. What Is Liquidation?

Liquidation refers to the formal process of closing a company by selling its assets to pay off liabilities. Once all obligations are settled, any remaining funds are distributed to shareholders, and the company ceases to exist.

Types of Liquidation

1. Voluntary Liquidation: Initiated by the company’s decision when it cannot pay its debts (creditors’ voluntary liquidation) or when it’s still solvent (members’ voluntary liquidation).
2. Compulsory Liquidation: Court-ordered liquidation, typically initiated by creditors or regulatory authorities.

Key Features of Liquidation

• Governed by the Insolvency and Bankruptcy Code (IBC), 2016 in India.
• Managed by a liquidator, who oversees asset sales and creditor payments.
• Aimed at maximizing returns for creditors while ensuring compliance with legal processes.

2. Distribution of Assets During Liquidation

The liquidation process prioritizes creditors based on their claims and legal standings. The IBC, 2016 specifies the following hierarchy:

Priority of Claims

1. Secured Creditors: Lenders with collateralized loans are paid first from the proceeds of the pledged assets.
2. Unsecured Creditors: Includes suppliers, employees, and other parties without collateralized claims.
3. Government Dues: Outstanding taxes, penalties, and other statutory dues are settled after creditors.
4. Equity Shareholders: Shareholders receive funds only if all prior obligations are met.

Steps in Distribution

1. Asset Valuation: Assets are appraised to determine their market value.
2. Asset Liquidation: Assets are sold to recover funds for debt repayment.
3. Debt Settlement: Creditors are paid according to the priority list.

3. Possible Consequences for Directors During Company Liquidation

Liquidation has far-reaching consequences for directors, particularly in cases involving insolvency. Their responsibilities and actions are scrutinized during this period.

Director Responsibilities

1. Ensuring Transparency: Directors must disclose financial information to the liquidator.
2. Ceasing Business Activities: Operations must halt to prevent additional liabilities.
3. Avoiding Fraudulent Transactions: Engaging in dubious practices during liquidation can lead to legal actions.

Legal Consequences

• Disqualification: Directors may face disqualification under Section 164 of the Companies Act, 2013, if found guilty of misconduct.
• Liability for Wrongful Trading: Directors can be held personally liable for debts incurred after insolvency is apparent.
• Fraudulent Preferences: Transactions favoring certain creditors over others can attract penalties.

Rights of Directors

While responsibilities increase, directors retain certain rights:

• To attend creditor meetings.
• To appeal liquidation decisions if deemed unjust.

4. Example of Liquidation

Understanding liquidation is easier with real-world scenarios. Here’s a simplified example:

Case: XYZ Industries

XYZ Industries, an electronics manufacturer, faced financial difficulties due to declining sales and increased competition. The company failed to meet its debt obligations, prompting creditors to file for liquidation under the IBC.

1. Trigger: Creditors initiated insolvency proceedings.
2. Liquidator Appointment: A liquidator was appointed by the National Company Law Tribunal (NCLT).
3. Asset Sale: The company’s assets, including machinery and inventory, were sold at auction.
4. Debt Settlement: Proceeds were distributed to secured and unsecured creditors based on priority.
5. Closure: Remaining funds were distributed among shareholders, and the company was officially dissolved.

Key Learnings:

• Liquidation is often the last resort.
• The process ensures creditors receive maximum recoveries.
• Legal compliance at every step is critical.

5. Liquidation: Important Points to Consider

Liquidation involves multiple stakeholders, each with distinct interests. Proper planning and professional advice can mitigate risks and improve outcomes.

Important Points for Companies

1. Timely Action: Delaying liquidation can lead to greater financial losses.
2. Accurate Records: Maintain up-to-date financial records to simplify the liquidation process.
3. Compliance: Adhere to the IBC and other applicable regulations.

Important Points for Creditors

1. Claim Submission: Creditors must submit claims promptly to be considered during the liquidation process.
2. Recovery Expectations: Understand recovery may be partial, depending on the asset base.

Important Points for Shareholders

1. Understand Priority: Shareholders are last in the payout hierarchy.
2. Engage Early: Actively participate in proceedings to ensure transparency.

6. Tax Implications and Financial Impact of Liquidation

Liquidation has significant tax and financial consequences, which vary based on the nature of the liquidation.

Tax Implications

• For Companies: Sale of assets may attract capital gains tax.
• For Creditors: Recovered amounts may be taxable as income.
• For Shareholders: Distributions may be subject to dividend tax.

Financial Impact

1. Credit Score Impact: A liquidated company’s directors and related entities may face a drop in creditworthiness.
2. Asset Depreciation: Assets sold during liquidation often fetch lower market values.
3. Market Reputation: The company’s reputation may be tarnished, affecting future ventures.

FAQs About Liquidation`

1. What is Liquidation?

Liquidation is the formal process of winding up a company’s operations by selling its assets to settle debts and obligations. Once the process is completed, the company ceases to exist.

2. What are the types of liquidation?

1. Voluntary Liquidation: Initiated by the company itself. It can be:
   • Members’ Voluntary Liquidation (MVL): For solvent companies.
   • Creditors’ Voluntary Liquidation (CVL): For insolvent companies.
2. Compulsory Liquidation: Initiated by creditors or regulators through a court order when a company fails to meet its obligations.

3. What triggers a liquidation process?

The following scenarios can trigger liquidation:

• Inability to pay debts (insolvency).
• Resolution by shareholders or creditors.
• Court orders based on creditor petitions or regulatory requirements.
• Non-compliance with legal or financial obligations.

4. What is the role of a liquidator?

A liquidator is an authorized professional who manages the liquidation process. Their responsibilities include:

• Assessing and valuing the company’s assets.
• Selling assets to recover funds.
• Settling creditor claims based on priority.
• Distributing remaining funds to shareholders.
• Ensuring compliance with legal requirements.

5. Who gets paid first during liquidation?

The Insolvency and Bankruptcy Code (IBC) outlines the priority of payments:

1. Secured creditors with collateralized loans.
2. Workmen’s dues and employee compensation.
3. Unsecured creditors, including suppliers and contractors.
4. Government dues, such as taxes and penalties.
5. Equity shareholders, if funds remain after all debts are cleared.

6. How is the liquidation process initiated?

1. Voluntary Liquidation:
   • The board of directors proposes liquidation.
   • Approval is obtained from shareholders and creditors.
   • A liquidator is appointed.
2. Compulsory Liquidation:
   • A petition is filed in court (usually by creditors).
   • The court appoints a liquidator and oversees the process.

7. How long does the liquidation process take?

The duration varies depending on the complexity of the case, the value of assets, and the number of creditors. On average:

• Voluntary liquidation: 6-12 months.
• Compulsory liquidation: 12-24 months or more.

8. What happens to employees during liquidation?

Employees are terminated when a company enters liquidation. However:

• Outstanding wages and benefits are prioritized during asset distribution.
• Workmen’s dues are given precedence over unsecured creditors.

9. Can a company recover after entering liquidation?

No, liquidation is the final step. Once the process is complete, the company ceases to exist. However, in some cases, parts of the business or assets may be sold to another entity, preserving some value.

10. What happens to directors during liquidation?

Directors face scrutiny during the liquidation process, particularly in cases of insolvency. They must:

• Provide accurate financial records to the liquidator.
• Cooperate fully during investigations.
• Avoid fraudulent practices or wrongful trading, as these can lead to personal liability.

11. What is wrongful trading, and how does it impact directors?

Wrongful trading occurs when directors allow a company to continue operating despite knowing it cannot pay its debts. Consequences include:

• Personal liability for the company’s debts incurred during the period of wrongful trading.
• Disqualification from holding director positions in the future.

12. What is the difference between insolvency and liquidation?

• Insolvency: The financial state where a company cannot pay its debts.
• Liquidation: The legal process of closing the company by selling its assets to pay creditors.

13. How are secured and unsecured creditors treated during liquidation?

• Secured Creditors: Paid first from the proceeds of the assets pledged as collateral.
• Unsecured Creditors: Paid after secured creditors and workmen’s dues. They often receive a lower percentage of their claims.

14. What is the role of NCLT in liquidation under IBC?

The National Company Law Tribunal (NCLT) oversees insolvency and liquidation cases in India. Its roles include:

• Approving or rejecting insolvency petitions.
• Appointing resolution professionals or liquidators.
• Ensuring adherence to the IBC framework.

15. How can creditors file claims during liquidation?

Creditors must submit proof of their claims to the liquidator. This includes:

• Invoices or contracts as evidence of debts.
• Supporting documents like payment records or legal agreements. The liquidator verifies claims before approving them for payment.

16. Can shareholders recover their investment during liquidation?

Shareholders are the last to receive funds during liquidation. They will recover their investment only if:

• All secured and unsecured creditors are paid in full.
• Any surplus funds remain after settling liabilities.

Conclusion

Liquidation, while often a challenging and complex process, serves as a mechanism to address insolvency and protect stakeholder interests. For companies, directors, creditors, and shareholders, understanding the nuances of liquidation is essential to navigate its financial, legal, and operational impacts. Professional guidance can play a pivotal role in ensuring a smooth process, maximizing recoveries, and minimizing liabilities.

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The eligibility norm for beginning the liquidation procedure

As per the IBC (i.e. Insolvency and Bankruptcy Code), the liquidation process under IBC cannot be initiated by creditors as the first resort on default payment. In fact, the code prescribes that either a financial or an operational creditor can commence the corporate insolvency resolution process in case of failure by the corporate debtor to pay at least Rs 100,000. In addition, the corporate insolvency resolution process can be initiated by the corporate debtor can. However, in case of failure to work out a resolution plan under the corporate insolvency resolution process prescribed under the code, the corporate debtor must be liquidated.

The voluntary liquidation proceedings can be initiated by the corporate debtor with the authorization of the board of directors, shareholders and creditors. Any corporate entity may commence a voluntary liquidation proceeding in case:

• any default has not been committed by it;
• majorly the designated partners or the directors of the corporate person make a declaration confirmed by an affidavit to the effect that:
  • the corporate person either has no debt or he can pay its debts in full from the proceeds of the sale of the assets under the proposed liquidation; and
  • liquidation is not initiated to defraud any person;
• such declarations are usually characterized by the audited financial statements as well as the valuation report of the corporate person;
• In the time span of four weeks of such declaration, a special resolution (in cases of voluntary liquidation by reason of expiry of its duration or occurrence of any dissolution event an ordinary resolution would suffice) is passed by the contributors needing the corporate person to be liquidated and appointing an insolvency professional as liquidator; and
• creditors representing two-thirds of the value of the total debt owed by the corporate person authorizes the resolution within seven days of its passage.

The voluntary liquidation process under IBC is largely an out-of-court process. Once the incidents of the corporate person have been completely settled and its assets fully liquidated can the liquidator applies to the National Company Law Tribunal for its detachment along with a final report. Pursuant to this application, the tribunal ought to pass an order for dissolution and the entity will be dissolved from the date the order is passed.

Procedure for Liquidation Process Under IBC

A few questions that generally come to our mind are:

What are the elementary procedures used to liquidate an insolvent company in your jurisdiction? What are the key characteristics and necessities of each? Are there any regulatory or structural distinctions between voluntary liquidation and compulsory liquidation?

The process to initiate liquidation process under IBC against a company (along with limited liability partnerships as well as other limited liability entities) on account of insolvency i.e. compulsory liquidation and on account of application made for voluntary liquidation is revered under the IBC except for winding-up for other grounds under the Companies Act 2013.

Step-1: Calling a meeting for the Board of Directors

First and foremost, the Company would have to call a meeting of the board of directors with the presence of a majority of its members. They would in turn, pass a resolution for the winding-up of the Company. They would have to formulate a statement in an affidavit that a complete analysis and examination has taken place about the debts that the Company has. The Company would pay all the debts from the revenue of the sale of its assets. The affidavit should also include that the liquidation of the Company is not taking place to defraud any person (applicable under Section 59(3) (a) of the Insolvency Code 2016).

Step-2: Summon the Shareholders for a meeting

Secondly, the Company has to call a meeting of its shareholders within 4 weeks of making this statement. During the meeting, the Company would conclude for the appointment of a liquidator. The details for the same would get mentioned in the resolution made during the meeting. The liquidator would make every effort to complete the work of liquidation within 12 months from the date of commencement of liquidation. He would keep the electronic or physical copy of all the important documents and papers for the next 8 years after the dissolution of the company.

Step-3: Approval of the Creditors

When the Company incurs any debts for different individuals, creditors comprising of two-thirds of the entire debt would have to give their consent in writing within 7 days of the making of the resolution by the shareholders for liquidation of the Company.

Step-4: A Public Statement by the liquidator

The liquidator has to make a public announcement in FORM-A of Schedule-I within 5 days of commencement of his duties. In order to give their claims within 30days from the date of commencement of the liquidation, the public statement shall make a request to all the stakeholders. The announcement of this would get broadcasted in one leading regional and English newspaper.

Step-5: Proceedings by the liquidator

The liquidator has to deposit a report to the Company within 45 days of the date of commencement of liquidation. He would keep evidences of registers as well as books regarding the process of liquidation. He would verify all the claims made by creditors for getting their dues.

Step-6: Money payment to the bank account

The liquidator ought to open a bank account in the name of a corporate person for the disbursement of money because of the creditors of the Company.

Step-7: Preparation as well as submission of final report

At length, the liquidator would make his final report. He has to mention all essential facts concerning liquidation of the Company in the report. After complete liquidation of the Company, the liquidator ought to submit his final report to NCLT in Form-1 concerning the complete dissolution of the Company.

Compulsory liquidation following corporate insolvency resolution process

An operational or financial or a corporate debtor may apply to the National Company Law Tribunal for the commencement of the insolvency resolution process following the default by the corporate debtor to pay dues of at least Rs100,000.

The code stipulates a timeframe of 180 days for the insolvency resolution process, which sets up from the date that the application is approved by the tribunal (but may be extended a further 90 days). During this time, no proceedings, suits, recovery or enforcement action can be initiated or continued against the corporate debtor. The committee of creditors shall contemplate and approve resolution plans which are placed before it for judgement and viability determination.

Once the liquidation triggers, the following may occur:

• the committee of creditors can’t settle on a workable resolution plan within 180 days (which can be extended once by 90 days);
• the committee of creditors makes a decision to liquidate the company;
• the tribunal scraps the resolution plan;
• the corporate debtor contradicts the resolution plan provisions; or
• the tribunal passes an order for the compulsory liquidation of the company.

Voluntary Liquidation

With the approval of a majority of the directors of the board a company may initiate the voluntary liquidation process, it is then followed by the approval of the majority of its shareholders as well as creditors.

Formal approval of the liquidation procedures

The National Company Law Tribunal must approve any compulsory liquidation on the occurrence of any of the liquidation triggers. Under compulsory liquidation, the consent of all the parties: i.e. the company, its shareholders or directors is immaterial.

Voluntary liquidation mandates the process to be introduced by the corporate debtor itself, through its directors or partners, and it must be passed by both its shareholders (in the case of a company) as well as creditors.

Effects of liquidation procedures on existing contracts

For the purposes of liquidation, the liquidator forms a legacy of the assets. Later, it holds the liquidation estate as a fiduciary for the benefit of all creditors. The liquidation estate assets includes contractual rights.

Timeframe for completion of liquidation procedures

The timeframe for completion of a compulsory liquidation process is typically within two years of the date of initiation.

On the other hand, voluntary liquidation can be concluded in a shorter period. The regulations under the Insolvency and Bankruptcy Code set out that in the event that the liquidation process is not concluded within 12 months, the liquidator shall hold a meeting with the other contributors within 15 days of expiry of the 12-month period and by the end of every succeeding 12-month period thereafter until the dissolution of the corporate person. The liquidator also has to present an annual status report signifying the progress of liquidation during each meeting.

Role of liquidator

Process of appointment of the liquidator and defining the extent of his or her powers and responsibilities:

A resolution professional who is designated for conducting the corporate insolvency resolution process is usually made to act as the liquidator for the liquidation process unless the National Company Law Tribunal changes the resolution professional with different insolvency professional.

The liquidator is authorized to:

• validate the claims of all the creditors;
• take over in his or her custody or control and sell all of the corporate debtor’s assets;
• check out and take such measures to conserve and preserve the assets and property of the corporate debtor;
• until liquidation conduct the corporate debtor’s business;
• investigate the financial affairs of the corporate debtor; and
• defend any suits or legal proceedings.

Court Involvement

After the National Company Law Tribunal appoints a liquidator for liquidation, it periodically administers the liquidation process. The law authorizes that a preliminary report should be submitted to the tribunal within 75 days of the commencement of the liquidation, describing the capital structure of the corporate debtor as well as the estimate of both assets and liabilities based on the corporate debtor’s books. As per the preliminary report, the liquidator must submit quarterly progress reports to the tribunal which in turn would indicate progress in liquidation, details of stakeholders and details of the property that remains to be sold or realized. Henceforth, both the sale as well as the distribution of assets to the claimants are also conducted under the tribunal’s supervision.

Creditor Involvement

To what extent are the creditor’s involved the extent in the process of liquidation and what actions are they prohibited from taking against the insolvent company in the course of the proceedings?

Creditors are mostly involved in the corporate insolvency resolution process wherein the affairs of the corporate debtor are regulated under the supervision of the creditors. However, once the corporate debtor has ordered for liquidation, the liquidator ought to take control over the debtor’s assets, he only has to liquidate them and distribute the sale proceeds in accordance to the claims received under the supervision of the National Company Law Tribunal. The lenders have to submit their respective claims to the liquidator; yet, the liquidation process is administered under the supervision and control of the tribunal.

Conclusion

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Following the above footsteps, the Insolvency and Bankruptcy Code, 2016 has two adjudicating authorities. The two adjudicating authorities enshrined under the Code are as follows:

1. National Company Law Tribunal (NCLT): For Corporate Persons
2. Debt Recovery Tribunal (DRT): For Individuals and Partnership Firms

The Insolvency and Bankruptcy recognized the NCLT as constituted under section 408 of the Companies Act 2013 to be the adjudicating authority for the purpose of insolvency and liquidation of corporate persons. The proposal for constituting the NCLT was made by the Eradi Committee.

Also the NCLT was designed to replace the jurisdiction of the erstwhile Company Law Board (CLB), the Board for Industrial and Financial Restructuring (BIFR) and the High Court in exercise of its jurisdiction as Company Court. Once NCLT got constituted and started functioning, the Bankruptcy Law Reforms Committee in its final report NCLT to be the appropriate adjudicating authority under the IBC for corporate persons.

NCLT was considered appropriate because under the Companies Act 2013, NCLT had jurisdiction over the winding up and liquidation process of companies. Similarly the Limited Liability Partnership Act, 2008 also conferred jurisdiction to NCLT for dissolution and winding up of Limited Liability Partnerships.

Role of NCLT under IBC

NCLT being the adjudicating authority for corporate persons under the IBC has been vested with various powers and roles. According to subsection (5) of section 60 of the Code, the NCLT shall have the power to entertain and dispose of the following:

• Any application or proceeding by or against the corporate debtor or corporate person ;
• Any claim made by or against the corporate debtor or corporate person including any claims filed by or against any subsidiaries situated in India and
• Any question of priorities or any question of law or facts arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under this code.

Jurisdiction of NCLT

The state of situation of registered office of the corporate entity shall be the deciding criterion for insolvency resolution and liquidation of corporate persons, corporate debtors and personal guarantors thereof.

On this note, the application for initiating the insolvency resolution process or liquidation of corporate debtors shall be filed before NCLT having jurisdiction over the place where the registered office of the corporate entity is situated.

The Section 63 of the code also states that the Civil Courts shall not have any authority to entertain any suit or proceedings in respect to any matter on which NCLT has power to entertain under the code.

Also the Section 9 of the Code of Civil Procedure, 1908 gives power to the courts to try all the suits of civil nature except suits from which such courts are expressly or impliedly barred.Therefore by being barred by section 63 of the code , Civil Courts shall not have jurisdiction over matters on which NCLT has jurisdiction.

The adjudicating authority for corporate persons shall be NCLT. The appeals if any against the order of NCLT shall be filed before NCLAT. Further any person aggrieved by the order of NCLAT may file an appeal to the Supreme Court. The appeal filed before Supreme Court shall be only on question of law arising out of order passed by order of NCLT or NCLAT.

1. NCLT

The adjudicating authority for corporate person as mentioned above shall be the NCLT having territorial jurisdiction over the place where the registered office of the corporate person is located. It is important to note that incase where a corporate insolvency resolution process or liquidation proceedings of a corporate debtor is pending before NCLT, then the application for insolvency resolution or bankruptcy of personal guarantor of such corporate debtor shall also be filed before the same NCLT as that of the corporate debtor.

If the insolvency process or bankruptcy proceedings of personal guarantor of the corporate debtor is appending before any court or tribunal then it shall in such a situation shall transferred to the same adjudicating authority which is dealing with the insolvency resolution process or liquidation proceedings of the corporate debtor.

2. NCLAT

Once the application under IBC is admitted by the NCLT from the corporate person then any person aggrieved by the order of NCLT may prefer an appeal before the NCLAT. Every appeal shall be filed before NCLAT within thirty days. An appeal can be filed beyond thirty days if NCLAT is satisfied that there was a sufficient cause for not being able to file within the thirty days duration , but then within fifteen days period after thirty days only.

3. Supreme Court

If a person is not satisfied and is aggrieved by the order of NCLAT then in such a case he can file an appeal to the Supreme Court. The application to be filed shall be based only on question of law that arouse out of the order only.

The application before Supreme Court shall be filed within forty-five days from the date of receipt of order of NCLAT. However, the Supreme Court may allow extension beyond forty-five days if it is satisfied that person was prevented by sufficient clause. The extension allowed shall be only fifteen days beyond the forty-five days duration.

Time Limit for Disposal of Appeal

The application shall be disposed off by NCLT or NCLAT within the period specified in the Code. However, if the application is not disposed off within the prescribed time limit, then the NCLT or NCLAT shall record the reason for delay in writing .

The President of NCLT or the Chairperson of NCLAT shall take the reason for delay into consideration and thereafter if required may extend the period prescribed in the act by another period not exceeding ten days.

Difference between Companies Act 2013 and the Code 2016

Hope this article was informative in providing insight about adjudicating authority for corporate persons. Stay connected with MUDS for updates.

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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:

1. In the cases where a resolution plan submitted by resolution is rejected due to failure to meet the specified requirements.
2. 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.

Liquidation estate

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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