Page Contents
Under the Liquidation process, The Liquidator must prepare and submit the below details as per Regulation 5 of the Liquidation Regulations under the Insolvency and Bankruptcy Code, 2016:
Liquidator should also get accounts completed & brought up to date, wherever they are found incomplete. Liquidator appointed is also needed to maintain ledgers, cash book, vouchers and various registers for security, investment & Assets. Moreover, In such a cases Liquidator is required to preserve electronic copy as well as physical copy of the said reports along with books of accounts for eight years after dissolution of the company under the Insolvency and Bankruptcy Code, 2016.
Under the Liquidation process, Distribution of assets of Corporate Debtor in liquidation is done as per under Section 53 of the IBC Code as per of the Liquidation Regulations: popularly known as ‘waterfall mechanism’. The order of priority in distribution of proceeds from liquidation estate is as follows under the of the Liquidation Regulations:
Key Note: Govt outstanding dues being placed on a lower priority is a big departure from prior legislations of the Liquidation Regulations:
The liquidator fee payable must be deducted proportionately from outstanding proceeds payable to each class of recipients & amount distributed to relevant recipient after such deduction as per of the Liquidation Regulations:
The financial creditors are granted priority over operational creditors in the settlement of their due amounts, as is clear from a simple reading of Section 53 and the waterfall process set forth therein. The operational creditors fall under the heading of “remaining debts and dues,” whereas the financial creditors have been expressly enrolled under Section 53.
In the matter of Binani Industries v. Bank of Baroda & Anr. before the Hon’ble NCLAT in New Delhi, the Hon’ble Tribunal decided that Section 53 is discriminatory towards operational creditors and that operational creditors should be given priority over financial creditors in terms of asset allocation. The Binani decision was likewise upheld by the Supreme Court.
Following that, in the case of Swiss Ribbons Pvt. Ltd. v. Union of India, the constitutional validity of Section 53 of the IBC was challenged before the Hon’ble Apex Court. The Hon’ble court concluded that the priority sequence enumerated under Section 53 has to be followed only during the corporate debtor’s liquidation, not during CIRP approval. Furthermore, because financial creditors and operational creditors do not have the same relationship with the corporate debtor, the Hon’ble Court stated that financial creditors are given priority over operational creditors. When opposed to an operational creditor, the debt owed to a financial creditor is bigger. As a result, Section 53 of the Code does not violate Article 14 of the Constitution and is founded on discernible distinctions.
Waterfall Mechanism in IBC Code, 2016 vs. in Companies Act, 2013 – Moser Baer Karamchari Union Thr. President Mahesh Chand Sharma Vs. Union of India and Ors. – Supreme Court
Summary
The purpose of implementing the IBC was to rehabilitate and revive the corporate debtor to the point where it could carry on its business on its own. The liquidation process is not intended to be a replacement for the resolution process, but rather a final resort if the settlement process fails. Furthermore, the Hon’ble NCLAT and the Judiciary have frequently concluded that even if a corporate debtor is liquidated, the liquidator should attempt to restore and continue the corporate debtor’s business.
Popular blog:-
All about Financial Forensics & its Applications Financial Forensics and Forensic Audit Techniques Financial forensics and forensic audit techniques are… Read More
Code of Conduct in Forensic Audit: Introduction: A forensic audit is a specialized examination that investigates financial records to uncover… Read More
When is the cancellation revocation applicable? Procedure for Implement Revocation for GST cancellation This applies only if, on its own… Read More
Enhancement Made to the GST Portal - Significant Update Goods and Services Tax Network is pleased to inform that an… Read More
ITC Mismatch GSTR-2B vs GSTR-3B - DRC-01C Intimation under Rule 88D New mechanism to deal with Input Tax Credit mismatches… Read More
Hurdles with Hindu Undivided Family Dissolution: The Hindu Undivided Family (HUF) is a recognized legal entity under the Income-tax Act,… Read More