corporate law
On June 28, 2024, the Insolvency and Bankruptcy Board of India (IBBI) issued Circular No. IBBI/LIQ/73/2024 to enhance the monitoring of liquidation processes under the Insolvency and Bankruptcy Code (IBC), 2016. This circular introduces electronic forms, replacing the previous email-based reporting approach, thereby improving efficiency and accuracy in the reporting managed by Insolvency Professionals (IPs).
The circular underscores the need for a well-organized and transparent management of liquidation processes. By introducing electronic forms, it aims to facilitate real-time reporting and record-keeping, thus enhancing efficiency and ensuring precise data submission throughout the liquidation journey.
During liquidation, the liquidator must invite claims from stakeholders, establish a liquidation estate, sell assets with the Stakeholders’ Consultation Committee, and distribute proceeds according to the waterfall mechanism outlined in Section 53 of the Code.
The Insolvency Professional (IP), acting as a liquidator, is responsible for ensuring compliance with legal requirements and for reporting to both the Adjudicating Authority (AA) and the IBBI. Currently, information regarding the liquidation process is submitted via email, which is neither efficient nor timely.
To ease the compliance burden on IPs, the Board has developed electronic forms to comprehensively capture details associated with the liquidation process.
The circular specifies four key forms that correspond to different stages of the liquidation process:
Form LIQ 1: Covers the period from the start of liquidation to the public announcement, detailing information about the liquidator, corporate debtor, and liquidator's fee. Submission is required by the 10th day of the month following the public announcement.
Form LIQ 2: Captures information from the public announcement to the progress report, detailing valuations, asset sales, litigation, and meetings with the Stakeholders’ Consultation Committee (SCC). This form is due by the 10th day of the month after the progress report is submitted to the Adjudicating Authority (AA).
Form LIQ 3: Addresses the timeframe from the last progress report to the dissolution application, including details on unclaimed proceeds, sales, and distribution. This must be filed by the 10th day of the month that follows the application for dissolution or closure.
Form LIQ 4: Contains details from the dissolution application up to the dissolution order, focusing on the final distribution of proceeds. Submission is required within 14 days of the dissolution order.
Timely Filing: IPs are obliged to file forms punctually. For ongoing cases, Forms LIQ 1 and LIQ 2 for the March 2024 quarter must be submitted by March 31, 2025. All relevant forms should adhere to this deadline for cases involving dissolution applications.
Access and Submission: The forms can be accessed on the IBBI website. IPs are required to log in with unique credentials and are responsible for timely and accurate submissions, which must be electronically signed or validated with a Digital Signature Certificate (DSC).
Non-Compliance Penalties: IPs who fail to comply with filing requirements or submit inaccurate or incomplete information may face penalties.
Mandatory Auction Platform: All unsold liquidation assets must be listed on the mandated auction platform by March 31, 2025. Auctions will be conducted exclusively on this platform starting April 2025.
Compliance Directives: The IBBI has identified instances of IPs submitting zero values in all fields. All submissions must be truthful and substantiated with documentation.
The IBBI's shift from an inefficient email-based submission system to a structured electronic reporting framework aims to significantly enhance the efficiency and accuracy of the liquidation process. Insolvency Professionals are encouraged to comply with the new filing requirements to avoid penalties and to ensure effective management of liquidation activities.