Sale as Going Concern under liquidation

Sale as Going Concern under liquidation under IBC

• The Corporate Debtor survive the Going Concern Sale; the Liquidator just transfers ownership to the purchaser. The buyer receives all of the corporate debtor’s rights, titles, and interests, including those in the legal company.
• This term also refers to a company’s ability to make enough money to stay afloat or to avoid bankruptcy. If a business is not a going concern, it means it’s gone bankrupt & its assets were liquidated.

Assessment of Sale as Going Concern Regulation 39 (C) of CIRP Regulations

• While approving a resolution plan under section 30 or deciding to liquidate the corporate debtor under section 33, the committee may recommend that the  liquidator may first explore sale of the corporate debtor as a going concern under  Regulation 32(E) of the IBBI(Liquidation Process) Regulations, 2016 or sale of the business of the corporate debtor as a going concern under Regulation 32 (f), if an order for liquidation is passed U/s 33 under IBC.
• In case committee recommends sale as a going concern, it shall identify and group the assets and liabilities, which according to its commercial considerations, ought to be sold as a going concern under clause (e) or clause (f) of regulation 32 of the IBBI (Liquidation Process) Regulations, 2016.
• The resolution professional shall submit the recommendation of the committee under sub-regulations (1) & (2) to the Adjudicating Authority while filing the approval or decision of the committee under section 30 or 33, as the case may be.”.

Sale as a Going Concern – Regulation 32A

• Where the committee of creditors has recommended sale under clause (e) or (f) of regulation 32 or where the liquidator is of the opinion that sale under clause (e) or (f) of regulation 32 shall maximise the value of the corporate debtor, he shall endeavour to first sell under the said clauses
• The group of assets and liabilities of the corporate debtor, as identified by the committee of creditors under Regulation 39C (2) of the CIRP Regulations, 2016 shall be sold as a going concern
• Where the committee of creditors has not identified the assets and liabilities under Regulation 39C (2) of the CIRP Regulations, 2016, the liquidator shall identify and group the assets and liabilities to be sold as a going concern, in consultation with the consultation committee
• If the liquidator is unable to sell the corporate debtor or its business under clause (e) or (f) of regulation 32 within ninety days from the liquidation commencement date, he shall proceed to sell the assets of the corporate debtor under clauses (a) to (d) of regulation 32.

IBBI (CIRP) (Second Amendment) Regulations, 2019

• At the stage of approval of resolution plan or deciding to liquidate CD
  • Financial support to liquidator by members of CoC (Reg 39B) CoC may approve plan for contribution to meet liquidation cost
  • Sale as a going concern (Reg 39C)
• CoC may recommend sale of the CD or sale of business of CD as going concern
  • Fees of liquidator (Reg 39D)
• CoC may in consultation with RP, fix the fee payable to liquidator

Application to Adjudicating Authority

• Moratorium period (stay on all pending fresh suits against the company).
• Appointment of resolution professional
• Constitution of committee of creditors consisting of financial creditors.
• All the powers of the Board of Directors get suspended and vest with the resolution professional.

Mode of Sale Regulation 33

        E – Auction

• • Marketing strategy with the help of marketing professionals.
  • Releasing advertisements.
  • Preparing-information sheet for the assets.
  • Preparing a notice of sale.
  • Liaising with agents.
  • Terms and Conditions of Sale
  • Fixing reserve price
  • Fixing-earnest money deposits.
  • Pre-Bid qualifications if any
  • Reserve Price Fixation
  • Reserve-Price to be as per Valuation done as per Regulation 35
  • Public Announcement (PA) of each auction.
  • Public-Announcement is required for each auction as per Reg 12(3)
    • One in English and One in regional language with
    • Vide Circulations.
    • At registered office and principle office, if any.
    • Any other location where corporate Debtor conduct.
    • material business operations .
    • On the Website of Corporate Debtor.
    • On-the designated website of IBBI.
  • PA can be waived by AA keeping in view value of assets.
  • Due diligence by interested buyers.
  • Liquidator to extend all assistance.
  • In case of auction fails, the Reserved Price can be reduced upto 25% of earlier RP for subsequent auction.
  • Where an auction fails at reduced price under clause (4A), the reserve price in subsequent auctions may be further reduced by not more than ten percent at a time.
  • Highest bidder shall be invited for making balance sale consideration within ninety days of the date of such demand (EARLIER 15 DAYS).
  • Payments made after thirty days shall attract interest at the rate of 12%.
  • Sale shall be cancelled if the payment is not received within ninety days.
  • Provided that the liquidator shall not require payment of any non-refundable deposit or fee for participation in an auction under the liquidation process.
  • Further Provided that the earnest money deposit shall not exceed ten percent. of the reserve price.
  • Where the liquidator rejects the highest bid in an auction process, he shall intimate the reasons for such rejection to the highest bidder and mention it in the next progress report.

IBBI’s Electronic Platform for hosting Public Notices of Auctions of Liquidation Assets under the IBBI (Liquidation Process) Regulations, 2016

• A liquidator is required to issue public notice of auctions on the website designated by IBBI, in addition to other specified modes of publication.
• Liquidators are presently auctioning liquidation assets on various auction platforms. The information regarding such auctions is not available at a centralised place.
• Centralised platform hosting all public notices of auctions of liquidation assets of ongoing liquidation processes would improve visibility for the liquidation  assets being sold, and may expedite the process and lead  to better realisation.
• Considering the above, the IBBI has provided an electronic platform on its website:ibbi.gov.in for hosting public notices of auctions of liquidation assets.
• Liquidators are, therefore, directed to upload the public notice of every auction of any liquidation asset, with effect from 1^st October, 2021, at ibbi.gov.in on the day of its publication in newspapers, through their  designated login page.

Mode of Sale – Reg 33

Requirement of e-auction: Online portal, if any designated by IBBI

• Registration by the buyers.
• Buyers can bid.
• The Buyers can receive confirmation of acceptance of their bid.
• Auction shall be transparent.
• Highest bid at any given point shall be visible to other bidders
• The requirement of highest bid visible can be waived with the permission of AA, if in the interest of creditors.
• Multiple rounds of auction can be done to maximise the realisation and to the best interest of creditors.

Physical auction is also possible.

• Based on the liquidator opinion.
• With the objective of maximisation of realisation.
• Best interest of creditors.
• With the permission of AA.
• Liquidator can avail the services of qualified professional auctioneers.
• Close of auction and payment of sale consideration.
• Sale stands closed on payment of full amount.
• A Sale shall be cancelled if the payment is not received within ninety days.
• Liquidator shall execute certificate or sale deed.

Private Sale

• Condition for Private Sale-any one of the Four
• The Asset is perishable;
• Asset is likely to deteriorate in value significantly , if not sold immediately;

• The Asset is sold higher than the reserved price of a failed auction; or
• the prior permission of the Adjudicating Authority has been obtained for such sale
• Process of Private Sale:
• Prepare a strategy to approach interest buyers.
• May be by direct liaising with potential buyers or their agents
• Via retail shops
• Through any other means for maximisation of realisation
• Sale will complete as per the terms of sale
• Asset can be delivered to the purchaser
• Receipt of full consideration

Distribution of Unsold asset to stakeholders – Regulation 38

The liquidator may, with the permission of the adjudicating authority, distribute amongst the stakeholders, an asset that cannot be readily or advantageously sold due to its peculiar nature or other special circumstances

• Permission of the Adjudicating Authority required.
• If an asset cannot be readily sold.
• In case an asset cannot be advantageously sold due to its peculiar nature.
• For some other special circumstances
• The application seeking permission of the Adjudicating Authority for following information:-
• identify the asset
• provide a value of the asset
• detail the efforts made to sell the asset, if any
• provide reasons for such distribution.

Liquidation Waterfall

• Insolvency resolution process costs & liquidation costs
• Secured creditors + Workmen’s dues (past 24 months)
• Employees’ wages (past 12 months)
• Unsecured creditors
• Government dues + Secured creditors (residual amt. if the creditor enforces his securities)
• Other remaining debts
• Shareholders
• Equity Shareholders

Case Study – Sale as Going Concern – Supreme Court

The Hon’ble Supreme Court in the matter of

Swiss Ribbons Pvt. Ltd. & Anr. Vs.Union of India &  Ors., observed:

• “What is interesting to note is that the Preamble does not, inany manner,  refer to liquidation, which is only availed of as a last resort if there is either no resolution plan or the resolution plans submitted are not up to the mark. Even in liquidation, the liquidator can sell the business of the corporate debtor as a going concern.
• It can thus be seen that the primary focus of the legislation is to ensure revival and  continuation of the corporate debtor by protecting the corporate debtor from its own management  and from a corporate death by liquidation.”

Arcelor Mittal India Private Limited Vs. Satish Kumar Gupta & Ors.[2018] 31 SC . observed:

• We must not forget that the corporate debtor consists of several employees and workmen whose daily  bread is dependent on the outcome of the corporate insolvency resolution process. If there is a resolution  applicant who can continue to run the corporate debtor as a going concern, every effort must be made to try and see that this is made possible.

Gauraj Jain Vs Sanjay Gupta (Liquidator of Topworth Pipes & Tubes Pvt Ltd) NCLT Mumbai

• In the normal parlance “going concern’ sale is transfer of assets along with the liabilities. However, as far as the “going concern” sale in liquidation is concerned, there is a clear difference that only assets are transferred and the liabilities of the CD has to be settled in accordance with Sec 53.

Essar Steel Judgement had said “.liquidator  may also sale the CD as a going concern”.

• The CD will not be dissolved in terms of Sec 54. The assets, with the attendant, clims, limitations, licenses, permits or business authorisations, remains in the Company.

SREI Equipment Finance Ltd Vs Viswa Infrastructures Finance & Services P Ltd

• The Successful bidder gave a term sheet for reliefs and concessions which was discussed in SCC and it was mentioned that the fund can be utilised by liquidator for disbursement only on approval of term sheet by Tribunal. It said that it is more or  less in the nature of resolution of the CD. Reliefs as mentioned in the order were allowed by Honble AA. The successful bidder filed a IA seeking reliefs and concessions.

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Services in the field of Insolvency Laws

• Services as ‘Insolvency Professionals’
• Team of Experts to act as an ‘Insolvency Professional’.
• Equipped with the required infrastructure to take control of Corporate Debtor and to make a meaningful concern in the long run.
• Cash flow monitoring and coordinating with banks
• Drafting & vetting of Expression of Interest, Information Memorandum and Evaluation Matrix
• Expert team for filing and Verification of claims
• Drafting and Filing reports with the Adjudicating Authority (NCLT)
• Filing of replies and applications with the Adjudicating Authority as and when the situation demands.
• Equipped with necessary Infrastructure to Liquidate the Corporate Debtors-
• Assist in Valuation & Forensic audit/Transaction audit, Assist in Sale of the corporate debtor as going concerned