The Insolvency and Bankruptcy Board of India (IBBI) has introduced amendments aimed at streamlining the voluntary liquidation process, allowing stakeholders to claim funds before the dissolution of firms. The modified regulations, revealed on Monday, empower stakeholders asserting entitlement to funds in the Corporate Voluntary Liquidation Account to request withdrawal from the liquidator before corporate dissolution.
Upon receiving such requests, the liquidator is mandated to verify the claims and subsequently seek approval from the Board for the release of funds, facilitating their distribution to the claimants. This significant change is considered a favorable development for stakeholders involved in the voluntary liquidation process.
In addition, the IBBI specified that directors initiating the voluntary liquidation process must now disclose any ongoing legal proceedings or assessments with statutory authorities. The directors are also required to declare that adequate financial provisions have been made to address potential obligations arising from pending proceedings. Sudhir Chandi, Partner at Resurgent Resolution Professional, highlighted the enhanced transparency resulting from these amendments.
Furthermore, the IBBI emphasized that if the liquidator fails to complete the corporate liquidation within the prescribed period of 90 or 270 days, depending on the circumstances, they must inform stakeholders about the additional time required to finalize the process. Anjali Jain, Partner in Insolvency & Banking at Areness, noted that this provision introduces additional accountability for liquidators, fostering dialogue among stakeholders to address any loopholes.
Recent data from the IBBI indicates that dissolution processes extend beyond the statutory 270 days in over 75% of applications. Consequently, the new provisions are expected to create accountability for liquidators and facilitate stakeholder dialogue to address any inefficiencies in the process.
Notably, many entities seeking voluntary liquidation are smaller corporations with a share capital of less than Rs 1 crore. The common reasons for pursuing dissolution include business closure or commercial unviability. With the implementation of these provisions, it is anticipated that corporations aiming to avoid tax-related liabilities will be deterred from submitting frivolous applications.
