Liquidation Process Under IBC

 

Liquidation Process Under IBC

If the resolution plan is not approved or the CIRP fails, the company enters liquidation. The liquidation process is managed by a liquidator, who is appointed by the NCLT.

A. Liquidation Timeline:

1. Timeframe: Liquidation must be completed within one year from the date of the NCLT order to liquidate the company, although this timeframe can be extended if required.

2. Appointment of Liquidator:

   • The IRP is replaced by a liquidator, who takes over the management of the company’s assets.

   • The liquidator's role is to sell assets, realize debts, and distribute the proceeds to the creditors.

B. Sale of Assets:

1. Asset Sale: The liquidator must sell the company’s assets in a transparent and fair manner to maximize the value recovered for creditors.

2. Order of Sale:

   • The liquidator can sell assets either by auction or by private sale.

   • If the assets are not sold or realized, the liquidator must arrange for the liquidation of the company’s business in accordance with the law.

C. Distribution of Proceeds:

The proceeds from the sale of assets are distributed to creditors in the following order of priority:

1. Secured Creditors: Secured creditors (e.g., banks with collateral-backed loans) are paid first from the sale of the secured assets.

2. Unsecured Creditors: Once secured creditors are paid, unsecured creditors (including operational creditors and financial creditors) are paid.

3. Government Dues: Any statutory dues (like taxes) owed to the government are paid next.

4. Shareholders: If there are any remaining proceeds after all creditors are paid, the shareholders of the company may receive the balance.

D. Role of Creditors in Liquidation:

1. Submitting Claims: Creditors must submit their claims to the liquidator to be considered in the distribution of proceeds.

2. Claim Verification: The liquidator verifies the claims before proceeding with the distribution.

3. Priority of Payment: Creditors are paid according to the liquidation waterfall, with secured creditors receiving their share first, followed by unsecured creditors.

4. Monitoring Liquidation: The creditors (or their representatives) can monitor the liquidation process and ensure that assets are sold properly and that proceeds are distributed according to priority.