Liquidation Regulations

Liquidation Regulations
Relevant sections from the code :
Section 33 - Initiation of liquidation.
Section 34- Appointment of liquidator and fee to be paid.
Section 35- Powers and duties of liquidator
Section 36- Liquidation Estate.
Section 37 - Powers of liquidator to access information.
Section 38 - Consolidation of claims.
Section 39 - Verification of claims.
Section 40 - Admission or rejection of claims.
Section 41 - Determination of valuation of claims.
Section 42 - Appeal against the decision of liquidator.
Section 43 - Preferential transactions and relevant time.
Section 44 - Orders in case of preferential transactions.
Section 45 - Avoidance of undervalued transactions.
Section 46 - Relevant period for avoidable transactions.
Section 47 - Application by creditor in cases of undervalued transactions.
Section 48 - Order in cases of undervalued transactions.
Section 49 - Transactions defrauding creditors.
Section 50 - Extortionate credit transactions.
Section 51- Orders of Adjudicating Authority in respect of extortionate credit

transactions.
Section 52 - Secured creditor in liquidation proceedings.

Section 53 - Distribution of assets.
Section 54 - Dissolution of corporate debtor.
The process of liquidation as envisaged under the Code has been briefly stated under the
following points:
Initiation of liquidation
Section 33 of the Code specifies the circumstances under which liquidation order in respect
of the corporate debtor shall be passed by the adjudicating authority.
The circumstances are:
(i) No resolution plan is received by the adjudicating authority from the resolution
professional before the expiry of the insolvency resolution process period
(including extension of such time, if any);
(ii) The resolution plan received by the adjudicating authority from the
resolution professional fails to comply with the requirements of section 31;
(iii) The committee of creditors, at any time before the confirmation of a resolution
plan during the corporate insolvency resolution period, decides to liquidate the
corporate debtor, and the same is intimated by the resolution professional to the
adjudicating authority;
(iv) The corporate debtor contravenes the resolution plan approved by the
adjudicating authority, and any person other than the corporate debtor
prejudicially affected by such contravention makes an application to the
adjudicating authority for a liquidation order in respect of the corporate debtor,
and the adjudicating authority determines that the corporate debtor has
contravened the provisions of the resolution plan.
Commencement of moratorium
When a liquidation order has been passed, the moratorium shall commence.
As such, no suit or other legal proceeding shall be instituted by or against the
corporate debtor. However, a suit or other legal proceeding may be instituted by
the liquidator, on behalf of the corporate debtor, with the prior approval of NCLT.
Important to note is that the moratorium provisions do not affect the rights of
secured creditor as envisaged under section 52.
Public announcement
A public announcement that the corporate debtor is in liquidation has to be issued.
 Regulation 12. Requires the liquidator to make a public announcement in Form B of

Schedule II within five days from his appointment and calling upon the stakeholders
to submit their claims within 30 days from the liquidation commencement date
 Announcement : one newspaper in English and regional language which has wide
circulation at the Registered office, principal office and any other location, where the
corporate person conducts material business operation
 On the website, of the corporate person or On the website, designated by the Board
for this purpose – both of which are subject to requirements
Appointment of liquidator
Section 34 deals with the appointment of liquidator and fee to be paid to him.
The resolution professional appointed for the corporate insolvency resolution
process shall act has liquidator unless replaced by NCLT.
The fee to the liquidator shall be paid from the proceeds of the liquidation estate.
Section 35 deals with powers and duties of the liquidator,
Regulation 8 (2) of LP regulations requires the liquidator to maintain the particulars of

any consultation with the stakeholders made under this Regulation, ie a Form A of
Schedule II.
Section 37 empowers the liquidator to access any information systems for the purpose of
admission and proof of claims and identification of the liquidation estate assets relating to
the corporate debtor from various sources.
Liquidation estate
Section 36 of the Code is one of the most crucial sections of the Code and calls for the
formation of a liquidation trust and defines the reach of the same.
To the extent, the assets of the corporate debtor form part of the so called ‘liquidation
estate’, the assets will be distributed by the liquidator, who holds the estate as a
fiduciary for the benefit of all creditors, in the manner of priorities laid down
under the Code itself.
In India, there was never an express provision in the company law for the formation of a
liquidation trust thereby expressly ‘marking the assets’ for the purpose of
distribution in accordance with the rules of priority.
Claims
Section 38 provides for consolidation of claims from financial and operational creditors;
Section 39 deals with verification of claims,
Section 40 deals with admission or rejection of claims by the liquidator.
Section 41 provides that the claims shall be valued by the liquidator in accordance with
the regulations specified by the Board.
Applications against the decision of the liquidator shall be made in accordance with
section 42.
A major part under these sections has to be dealt with by way of regulations specified by
the Board.
Distribution of assets
The proceeds from the sale of assets of the liquidation estate have to be
distributed in accordance with section 53.
The priority waterfall has been designed differently from the one existing under the
Companies Act, 1956/2013.
A major difference is the difference in priority accorded to dues to the Government –such
dues has been ranked below the debts due to unsecured creditors, so as to enhance
the availability of credit to corporate entities
Order of Priority :
1. Insolvency resolution process costs and liquidation costs

2. Workmen’s dues, and debts due to a secured creditor who has relinquished
security interest
3. Wages and dues of employees other than workmen
4. Financial debts owed to unsecured creditors
5. Dues to the Government, and dues owed to a secured creditor who has realised
security interest but the proceeds are insufficient to meet the debts
6. Residuary debts and dues
7. Preference shareholders, if any
8. Equity shareholders or Partners, as the case may be
Dissolution
Section 54 makes provisions for closure of liquidation proceedings in respect of

the corporate debtor. An application shall be made by the liquidator to the adjudicating
authority for dissolution.
Avoidance Transactions
Sections 43 to 51 contain the power of the resolution professional or liquidator to

seek avoidance and reversal of transactions entered into during a look back or
relate-back period or reach back period prior to commencement of insolvency
proceedings and powers of the NCLT to make certain orders for avoidance of such
transactions.
Section 43 pertains to Preferential Transactions ie Any transfer made to a certain
creditor, surety or guarantor, so as to put the recipient in a beneficial position in
relation to other creditors
Section 45 pertains to Undervalued Transactions ie Gifts or transfer of property at a

value significantly lower than the consideration paid by the debtor
Section 49 pertains to Transactions defrauding creditors ie Any transaction deliberately

intended to put the assets of entity beyond the reach, or adversely affect the
interest to any claim
Section 50 pertains to Extortionate credit transactions ie Any financial or operating debt

on exorbitant terms
Rights of secured creditors
Section 52 preserves the right of a secured creditor in liquidation proceedings to

enforce his security interest.
The secured creditor may choose to relinquish the security interest in favour of the
liquidation estate.
In the former case, the secured creditor has to prove the existence of the security interest
and the liquidator shall verify such security interest.
The section also makes facilitating provisions for the secured creditor opting to
realise its security interest.
In case the realisation proceeds from the enforcement of the security interest yields an
amount higher than the debts due to the secured creditor, the excess shall be tendered to
the liquidator.

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Liquidation Regulations

Relevant sections from the code :

Section 33 - Initiation of liquidation.

Section 34- Appointment of liquidator and fee to be paid.

Section 35- Powers and duties of liquidator

Section 36- Liquidation Estate.

Section 37 - Powers of liquidator to access information.

Section 38 - Consolidation of claims.

Section 39 - Verification of claims.

Section 40 - Admission or rejection of claims.

Section 41 - Determination of valuation of claims.

Section 42 - Appeal against the decision of liquidator.

Section 43 - Preferential transactions and relevant time.

Section 44 - Orders in case of preferential transactions.

Section 45 - Avoidance of undervalued transactions.

Section 46 - Relevant period for avoidable transactions.

Section 47 - Application by creditor in cases of undervalued transactions.

Section 48 - Order in cases of undervalued transactions.

Section 49 - Transactions defrauding creditors.

Section 50 - Extortionate credit transactions.

Section 51- Orders of Adjudicating Authority in respect of extortionate credit

Section 52 - Secured creditor in liquidation proceedings.

Section 54 - Dissolution of corporate debtor.

The circumstances are:

A public announcement that the corporate debtor is in liquidation has to be issued.

 Regulation 12. Requires the liquidator to make a public announcement in Form B of

Section 35 deals with powers and duties of the liquidator,

Regulation 8 (2) of LP regulations requires the liquidator to maintain the particulars of

Section 39 deals with verification of claims,

Section 40 deals with admission or rejection of claims by the liquidator.

1. Insolvency resolution process costs and liquidation costs

Section 54 makes provisions for closure of liquidation proceedings in respect of

Sections 43 to 51 contain the power of the resolution professional or liquidator to

Section 45 pertains to Undervalued Transactions ie Gifts or transfer of property at a

Section 49 pertains to Transactions defrauding creditors ie Any transaction deliberately

Section 50 pertains to Extortionate credit transactions ie Any financial or operating debt

Rights of secured creditors

Section 52 preserves the right of a secured creditor in liquidation proceedings to

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