What are the steps in the liquidation process?

The liquidator is an insolvency professional on whom all the powers of the Board of Directors, key managerial personnel, and the partners, as applicable, of the Corporate Debtor are vested by the Adjudicating Authority upon Liquidation order being passed under section 33 of the Insolvency and Bankruptcy Code, 2016. 

STEP 1 - Appointment of Liquidator.

Section 34 of IBC, 2016 deals with the appointment of liquidator. The Resolution Professional who was appointed for the resolution process shall act as liquidator in the insolvency process until and unless certain order is passed regarding the same. All the powers of the board, directors, creditors, and partners of corporate debtors shall be vested in liquidator on the appointment by adjudicating authority. All the debtors shall give assistance and cooperation to the liquidator to manage the affairs of the corporate debtor.

 Liquidator fees are governed as per the Regulation 4 of the IBBI Regulation, 2016 and Section 35 of IBC, 2016 deals with the powers and duties of liquidators, such as:

a.      Verify, evaluate, protect and have custody of the estate and properties that belong to corporate debtors.

b.     Sell any moveable and immovable properties and claims as he thinks fit and can draw, accept, and endorse any negotiable instruments.

c.      Institute or defend any legal proceedings initiated by or against the corporate debtor.

d.     Investigate the financial matters and can take actions, steps, sign, execute and verify any paper, documents involved in the matter.

e.      Perform all the functions as specified and governed by the board. 

Step 2- Public announcement of liquidation and calling for claims and appointment of valuer.

After the order is given, public announcement is to be made within 5 days after commencement date and calling for submission of claims as per Schedule II of IBBI.  

The liquidator shall receive or collect the claims of creditors within a period of 30 days from the date of the commencement of the liquidation process as per Section 38 (1) of IBC,2016.

Appointment of registered valuers to value the assets to be appointed within 7 days from the liquidation commencement date.  

Step 3-

(a)       Verification and acceptance of claims-

Section 39, 40 of IBC,2016 deals with the verification and acceptance of the claims, the liquidator shall verify the claims as per Section 38 and can claim any document or paper from the debtors and creditors. As per Section 38, the liquidator shall receive or collect the claims within 30 days from the date of commencement of the liquidation process. As per Section 39, the liquidator shall verify the claims submitted within a period of 30 days from the date of commencement of liquidation process. The liquidator may, after verification of claims, either admit or reject the claim, in whole or in part, as per Section 40.    

 The liquidator has to communicate about the acceptance of the claims within 7 days from the last day of admission/rejection of claims. 

Further, beyond 30 days the liquidator has no power to admit the same. An appeal is to be filed within 14 days of such decision by the liquidator as per Section 42 of IBC,2016. Section 42 deals with Appeal against the decision of liquidator. A creditor may appeal to the Adjudicating Authority against the decision of the liquidator, by accepting or rejecting the claims.

As per Section 41, the liquidator shall determine the value of claims admitted under section 40 in such manner as may be specified by the Board.

(b)       Preparation of assets memorandum and other reports. The liquidator shall prepare and submit a Preliminary Report, Annual Status Report, Minutes of consultations with stakeholder, Final Report.

The assets memorandum shall be made and submitted within 75 days from liquidation order and shall contain the valuations of assets as per the valuation reports and sale reports if made. 

Similarly, preliminary reports are to be submitted within 75 days from liquidation commencement date containing capital structure and estimates assets and liabilities as per the books of accounts. First progress reports and subsequent progress reports gives the settled list of stakeholders, details of properties that are to be sold, a distribution made to the stakeholders, details of fees and remuneration, details of litigation, expenses of litigation. On completion of the liquidation process, the liquidator shall prepare the Final Report consisting of audited accounts of the liquidation, showing receipts and payments pertaining to liquidation since the liquidation commencement date, a sale statement in respect of the value of an asset, mode and manner sale of an asset, the liquidator shall send the report to the Registrar, Board and Adjudicating Authority. 

Step 4- formation of liquidation asset.

The next stage is the formation of liquidation assets owned by the corporate debtor. This includes all the properties on which corporate debtor has ownership rights, moveable and immovable, tangible goods, intangible goods, assets in respect of which security interest has been relinquished by a secured creditor, assets on which ownership is determined by the court or authority.

Basically, the liquidator forms and accounts for the liquidation assets which are taken into consideration.