Liquidation rules tighened

Mumbai: The Insolvency and Bankruptcy Board of India (IBBI) has changed the rules for liquidation process by barring creditors from selling assets of a company to any person restricted from submitting insolvency resolution plan.

The amendments are 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, experts said.

Also, a secured creditor will have to contribute its share towards insolvency resolution and liquidation process costs and workmen’s dues within 90 days of the liquidation commencement date.

An official release on Tuesday said: "The amendment clarifies that a person, who is not eligible under the code to submit a resolution plan for insolvency resolution of the corporate debtor, shall not be a party in any manner to a compromise or arrangement of the corporate debtor under section 230 of the Companies Act, 2013," it said.

Further, a secured creditor cannot sell or transfer an asset, which is subject to security interest, to any person who is not eligible under the code to submit a resolution plan for insolvency resolution of the corporate debtor.

"The amendment provides that a secured creditor, who proceeds to realise its security interest, shall contribute its share of the insolvency resolution process cost, liquidation process cost and workmen's dues, within 90 days of the liquidation commencement date," the release said.

“This is a logical amendment and reinforces the objective of the code to debar certain categories of promoters from taking back control of their companies,” Mehul Bheda, partner, Dhruva Advisors, said.