New Delhi, Sep 3 : The Insolvency and Bankruptcy Board of India (IBBI) has proposed a provision under the liquidation regulations of the Insolvency and Bankruptcy Code, 2016 to enable exit of creditors who urgently require liquidity and cannot wait for the whole process to complete.
In its ‘Discussion Paper on Corporate Liquidation Process’, the IBBI has said that during the liquidation process, a creditor files its claim and thereafter, waits for the liquidator to make realisation and distribute it as per the ‘waterfall mechanism’ defined under section 53 of the Code. This whole process is time-consuming and some stakeholders may like to assign their interests and move on.
The same is allowed during the CIRP under regulation 28 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (‘CIRP Regulations’).
“It is proposed that a provision similar to that in the CIRP Regulations may be provided under Liquidation Regulations to enable exit of stakeholders who cannot wait or who are in urgent need of liquidity,” it said.
In the discussion paper, the IBBI has proposed to provide in the liquidation regulations that if a creditor assigns or transfers the debt due to such creditor to any other person during the liquidation process period, both parties shall provide the liquidator, the terms of such assignment or transfer and the identity of the assignee or transferee.
The liquidator may apply to the adjudicating authority to modify an entry in the list of stakeholders filed with the adjudicating authority, as provided under sub-regulation (3) of regulation 31.
It noted that generally the holding capacity of creditors varies greatly, depending primarily upon their financial conditions. Creditors with low financial capacity or in the process of cleaning their balance sheet may be interested in getting their dues instantly, even at a discounted value, rather than waiting for a longer period to receive a higher pay-out.
“The transferee, on the other hand, with greater financial capacity would be willing to wait and obtain the actual realisation from the liquidation estate. Therefore, the assignment of debt by a creditor under liquidation process to a third party would lead to improvement in allocation of resources in the economy,” it said.
According to the IBBI, the proposed amendment would benefit the stakeholders involved in the liquidation process by providing them with an additional option of exit at an earlier stage. It would also benefit the economy as a whole, since the creditors, including financial creditors with early exit, can further lend those funds, thereby increasing availability of credit in the economy and promoting entrepreneurship, it added.
The IBBI has sought comments for the proposal by September 16.
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