The Insolvency and Bankruptcy Board of India (IBBI) has eased the voluntary liquidation process by facilitating the distribution of proceeds to the stakeholders before such dissolution of firms.
According to the modified regulations issued by the regulator in this regard on Monday, prior to corporate dissolution, stakeholders who are claiming entitlement to funds in the Corporate Voluntary Liquidation Account can apply to the liquidator for withdrawal.
“Upon receiving such a request, the liquidator shall verify the claim and request the Board to release the funds to him/her for onward distribution,” it said. This is a key change, and is seen as a beneficial move for various stakeholders, as per experts.
The regulator further said that from now the directors of the company, while initiating the voluntary liquidation process, shall make disclosures about pending proceedings or assessments before statutory authorities. They should also declare that sufficient provision has been made to meet the likely obligations arising, if any, on account of the pending proceedings.
“The new amendments will enhance transparency, as directors are now mandated to disclose any ongoing legal proceedings and make adequate financial provisions,” said Sudhir Chandi, Partner at Resurgent Resolution Profesional.
Moreover, the IBBI mentioned that if the liquidator fails to liquidate the corporate within the stipulated period of 90 days or 270 days as the case may be, he/she should inform the stakeholders of the additional time required for completing the process.
“Latest available data from IBBI informs that in more than 75% of applications, the average tenure of dissolution takes more than the statutory 270 days. Hence, the said provisions may further create additional accountability on the liquidators and space for dialogue amongst stakeholders to plug the loopholes, if any,” said Anjali Jain, Partner – Insolvency & Banking, Areness.
Most corporates reaching out for benefit of the voluntary liquidation are smaller entities with share capital of less than Rs 1 crore, and reasons for seeking dissolution is either closure of business or commercial unviability, however, with such provisions in place now, corporates eyeing to escape the liabilities of taxmen will refrain from filing frivolous applications, she said.