FUNCTIONS OF LIQUIDATOR UNDER INSOLVENCY AND BANKRUPTCY CODE, 2016

When the Adjudicating Authority passes an order for liquidation of Corporate Debtor, simultaneously it appoints Resolution Professional, who has conducted Corporate Insolvency Resolution Process, as Liquidator of the Corporate Debtor. The Liquidator has to handle Liquidation Process till dissolution of the Corporate Debtor. On the appointment of Liquidator, all powers of the board of directors, key managerial personnel, and the partners, as the case may be, cease to have effect and vests in the Liquidator.

The personnel of the Corporate Debtor have to extend all assistance and cooperation to the Liquidator in managing the affairs of the Corporate Debtor.

Generally, the Adjudicating Authority has to appoint the Resolution Professional as the Liquidator but in certain circumstances, Liquidator can be replaced. The Adjudicating Authority can replace the Liquidator if the Resolution Plan submitted by the Resolution Professional has been rejected for failure to meet the mandatory requirement mentioned in Section 30 (2). The Adjudicating Authority can also replace the Liquidator if IBBI has recommended replacement of a Resolution Professional to the Adjudicating Authority. The reasons in such cases have to be recorded in writing.

If Resolution Professional has not consented to act as Liquidator, a fresh Liquidator has to be appointed by the Adjudicating Authority on recommendation of IBBI.

The eligibility conditions and disclosures required from Liquidator issimilar to the eligibility conditions of the Interim Resolution Professional.

The Liquidator has to discharge following duties under Section 35 (1) of the Code:

• To verify the claims of all the creditors
• To take into his custody or control all the assets, property, effects, and actionable claims of the Corporate Debtor.
• To evaluate the assets and property of the Corporate Debtor in the manner as may be specified by IBBI and prepare a report
• To take such measures to protect and preserve the assets and properties of the Corporate Debtor as he considers necessary
• To carry on the business of the Corporate Debtor for its beneficial liquidation as he considers necessary.
• Subject to Section 52, to sell the immovable and movable property and actionable claims of the Corporate Debtor in liquidation by public auction or private contract, with power to transfer such property to any person or body corporate, or to sell the same in parcels in such manner as may be specified. But the Liquidator cannot sell the immovable or movable property or actionable claims of the Corporate Debtor in liquidation to any person who is not eligible to be a Resolution Applicant
• To draw, accept, make or endorse any negotiable instruments including bills of exchange, hundi or promissory note in the name and on behalf of the Corporate Debtor, with the same effect with respect to the liability as if such instruments were drawn, accepted, made or endorsed by or on behalf of the Corporate Debtor in the ordinary course of its business.
• To take out, in his official name, letter of administration to any deceased contributory and to do in his official name any other act necessary for obtaining payment of any money due and payable from a contributory or his estate which cannot be ordinarily done in the name of Corporate Debtor , and in all such cases, the money due and payable will  , for the purpose of enabling the Liquidator to take out the letter of administration or recover the money, be deemed to be due to the Liquidator himself.
• To obtain any professional assistance from any person or appoint any professional, in discharge of his duties, obligation and responsibilities.
• To invite and settle claims of the creditors and claimants and distribute proceeds in accordance with the provisions of the Code
• To institute or defend any suit, prosecution or other legal proceedings, civil or criminal
• To investigate the financial affairs of the Corporate Debtor to determine undervalued or preferential transactions
• To take all such actions, steps or to sign, execute and verify and paper, deed, receipt document, application, petition, affidavit, bond or instrument and for such purpose to use the common seal, if any, as may be necessary for liquidation, distribution of assets and in discharge of his duties and obligations and functions as Liquidator
• To apply to the Adjudicating Authority for such orders or directions as may be necessary for the liquidation of the Corporate Debtor and to report the progress of the Liquidation Process in a manner as may be specified by IBBI
• To perform such other functions as may be specified by IBBI

Section 35(2) empowers the Liquidator to consult any of the stakeholders entitled to a distribution of proceeds under Section 53, but such consultation is not binding on the Liquidator. The stakeholders consulted under Section 35 (2) has to extend all assistance and cooperation to the Liquidator to complete the liquidation of the Corporate Debtor. The Liquidator has to maintain the particulars of any consultation with the stakeholders made under this regulation as specified in Form A of Liquidation Regulations.  Record of any such consultation has to be made available to all other stakeholders not so consulted.

PUBLIC ANNOUNCEMENT

The Liquidator has to make a public announcement in Form B of liquidation regulations within five days from his appointment calling upon stakeholders to submit their claim as on liquidation commencement date.  A stakeholder has also option to update the claim filed with the Resolution Professional during CIRP.  The public announcement has to provide thirty days from liquidation commencement date to stakeholders to submit their claims.

Public announcement has to be published in one English and one regional language newspaper   with wide circulation at the location of the registered office and principal office of the Corporate Debtor and any other location wherein the opinion of the Liquidator, the Corporate Debtor conducts material business operations. Public announcement has to be also published on the website of the Corporate Debtor. Public announcement has also to be published on website designated by IBBI.

PROCESS E-MAIL ID

Liquidation Regulation 12A provides that the Liquidator shall operate the process e-mail account handed over to him by the Resolution Professional in accordance with CIRP Regulation 4C and in the event of his replacement, the credentials of such email ID shall be handed over to the new Liquidator

DETERMINATION OF CLAIM

The Liquidator has to receive or collect the claims of the creditors within a period of thirty days from the date of the commencement of the Liquidation Process. A stakeholder has to submit its   fresh claim or update its claim submitted during Corporate Insolvency Resolution Process, including interest on or before the last date mentioned in the public announcement.  A person has to prove its claim for debt or dues to him, including interest as on the liquidation commencement date. A creditor may withdraw or vary his claim within fourteen days of its submission.

Procedure of submission and verification of claims during liquidation are mutatis mutandis similar as in the case of Corporate Insolvency Resolution Process. An Operational Creditor, other than workman or employee, has to submit his claim in form C of liquidation regulations.   A Financial Creditor of the Corporate Debtor has to submit proof of claim to the Liquidator in electronic means in Form D of Liquidation Regulations. A workman or employee of the Corporate Debtor has to submit proof of claim to Liquidator in person or by electronic means in Form E of Liquidation Regulations. In cases where there are dues to numerous workmen, employees of the Corporate Debtor, an authorised representative has to submit one proof of claim for all such dues on their behalf in Form F of Liquidation Regulations.  Other stakeholder not covered under Operational Creditor, Financial Creditor, workmen or employee can file proof of claim to the Liquidator in person by post or electronic means in Form G of Liquidation Regulations.

The Liquidator can call for such other evidence or clarification as he deems fit from a claimant for substantiating the whole or part of its claim. A claimant has to bear the cost of proving the claim. Cost incurred by the Liquidator for verification and determination of a claim will form part of Liquidation Estate.  If a claim or part of claim is found to be false, the Liquidator has to endeavor to recover the costs incurred for verification and determination of claim from such claimant and has to provide the details of claimant to IBBI.

Where a stakeholder does not submit claim during liquidation process, claim submitted by such stakeholder during Corproate Insolvency Resolution Process will be treated as claim.

The Liquidator has to verify the claims submitted within thirty days from the last date of receipt of claims.  The Liquidator may require any creditor or the Corporate Debtor or any other person to produce any other document or evidence which he thinks necessary for the purpose of verifying the whole or any part of the claim.

The Liquidator after verification of the claim may either admit the claim of reject it. Where the amount claimed by a claimant is not precise due to any contingency or any other reason, the Liquidator has to make the best estimate of the amount of the claim based on the information available with him.

The Liquidator has also to verify claims collated during Corporate Insolvency Resolution Process but not submitted during the Liquidation Process within thirty days from the last date for receipt of claims and may accept or reject the claim, wholly or partly.

In cases where the Liquidator rejects the claim, the Liquidator has to record in writing the reasons for such rejection.  The Liquidator has to communicate decision of admission or rejection of claims to the concerned creditor and the Corporate Debtor within seven days of such admission or rejection of claim.

A creditor has right of appeal under Section 42 against the decision of the Liquidator accepting or rejecting the claims within fourteen days of receipt of such decision.

LIST OF STAKEHOLDERS

Under Liquidation Regulation 31, the Liquidator has to prepare a List of Stakeholders. Such List of Stakeholders has to be prepared category wise on the basis of proofs of claims submitted and accepted. Such List of Creditors has to show the amounts of claims admitted, the extent to which the debts or dues are secured or unsecured, the details of stakeholders and the proofs admitted or rejected in part and the proofs wholly rejected.

The Liquidator has to file the List of Stakeholders with the Adjudicating Authority within forty-five days form the last date of receipts of the claims.

The Liquidator may apply to the Adjudicating Authority to modify an entry in the List of Stakeholders filed with the Adjudicating Authority, when he comes across additional information warranting such modifications and has to modify the entry in the manner directed by the Adjudicating Authority.

The Liquidator has to modify the List of Stakeholders filed with the Adjudicating Authority in the manner directed by the Adjudicating Authority while disposing off an appeal preferred under Section 42.

The List of Stakeholders, as modified from time to time, has to be available for inspection by the persons who submitted proofs of claim, by members, partners, directors, and guarantors of the Corporate Debtor; has to be displayed on the website of the Corporate Debtor; and filed on electronic platform of IBBI for dissemination on its website.

STAKEHOLDERS’ CONSULTATION COMMITTEE

Under Liquidation Regulation 31A, the Liquidator has to constitute a Consultation Committee consisting of all stakeholders of the Corporate Debtor within sixty days from the liquidation commencement date based on the List of Stakeholders prepared under Liquidation Regulation 31. The Consultation Committee has to advise the Liquidator on matters relating to remuneration of professionals appointed under regulation 7; sale under regulation 32, including manner of sale, pre-bid qualifications, reserve price, marketing strategy and auction process;   on matters relating to sale under Liquidation Regulation 32; fees of the liquidator. The Consultation Committee can also advise the Liquidator regarding the manner in which proceedings in respect of Preferential Transactions, Undervalued Transaction, Extortionate Credit Transaction or Fraudulent or Wrongful Trading, if any, shall be pursued after closure of liquidation proceedings and the manner in which the proceeds, if any, from these proceedings shall be distributed.

The Committee of Creditors formed under Section 21 has to function as the Consultation Committee with same voting rights till constitution of the Consultation Committee.

The voting share of a member of Consultation Committee will be in proportion to his admitted claim of total admitted claim.  A secured creditor who has not relinquished security interest under Section 52 of the Code cannot be part of Consultation Committee. Promoters, directors, partners or their representatives may attend the meeting of the Consultation Committee but do not have right to vote. A Financial Creditor or his representative, if he is a related party to a Corporate Debtor, does not have right to vote.

The Liquidator may facilitate the stakeholders of each class namely financial creditors in a class, workmen, employees, government departments, other operational creditors, shareholders, partners, to nominate their representative for participation in the consultation committee.

The liquidator has to convene the first meeting of the Consultation Committee within seven days of the liquidation commencement date and may convene other meetings, if he considers necessary, on a request received from one or more members of the Consultation Committee. If  a request is received by the Liquidator from members, individually or collectively, having at least thirty three percent of the total voting rights, the Liquidator has to  mandatorily convene the meeting.

The Liquidator has to chair the meeting of the Consultation Committee and record deliberation of the meeting.

The Liquidator has to place the recommendation of Committee of Creditors made under CIRP regulation 39 C (1) regarding the sale of Corporate Debtor as a going concern or sale of businesses of Corporate Debtor as going concern before the Consultation Committee for its information.

The Consultation Committee has to advise the Liquidator by a vote of not less than sixty six percent of the representatives of the Consultation Committee.

The advice of the Consultation Committee is not binding on the Liquidator. But when the Liquidator takes a decision different from the advice given by the Consultation Committee, he has to record reasons for the same in writing   and submit the records relating to the said decision, to the Adjudicating Authority and to the Board within five days of the said decision and include it in the next Progress Report.

The Consultation Committee, after recording the reasons, may by a majority vote of not less sixty-six per cent., propose to replace the liquidator and shall file an application, after obtaining the written consent of the proposed liquidator in Form AA of the Schedule II, before the Adjudicating Authority for replacement of the Liquidator. Where a Liquidator is proposed to be replaced, he has to continue to work till his replacement and be suitably remunerated for work performed till his replacement.

Where a Consultation Committee under Regulation 31A has been constituted before the commencement of Insolvency and Bankruptcy Board of India (Liquidation Process) (Second Amendment) Regulations, 2022, the Liquidator within thirty days of the commencement of the said Regulations, has to reconstitute the Consultation Committee as required under the said Regulations and provisions provided under amended Regulation 31A shall come into effect only after such constitution.

From the constitution of the Stakeholders’ Consultation Committee, it is evident that the constitution of Stakeholders’ Consultation Committee is more representative in comparison to the Committee of Creditors. But the power of Stakeholders’ Consultation Committee is much less in comparison to Committee of Creditors as the Stakeholders’ Consultation Committee has only advisory power.

The Insolvency Law Committee in its 5^th Report has noted that Stakeholders’ Consultation Committee can play a pivotal role in the Liquidation Process by giving valuable commercial insights and maintaining oversight over the functioning of the Liquidator. It has recommended for mandatory consultation with Stakeholders Consultation Committee.

CONDUCT OF MEETING OF CONSULTATION COMMITTEE

Liquidation Regulation 32B provides that CIRP Regulations from 18 to 26 in respect of conduct of meeting of Committee of Creditors will mutatis mutandis apply to meetings of Consultation Committee under Liquidation Proceedings.

APPOINTMENT OF PROFESSIONALS

Like an Interim Resolution Professional or Resolution Professional, Liquidator can also appoint professionals to assist him in the discharge of his duties, obligations and functions for a reasonable remuneration and such remuneration will make part of the Liquidation Cost. The Liquidator cannot appoint such professional who is a relative, or is a Related Party to the Corporate Debtor or has served as an auditor to the Corporate Debtor in the five years preceding the liquidation commencement date.  Any such professional has to disclose the existence of any pecuniary or personal relationship with any of the stakeholders or the concerned Corporate Debtor as soon as he becomes aware of it to the Liquidator

PERSONNEL TO EXTEND COOPERATION TO LIQUIDATOR

Under Liquidation Regulation 9 the Liquidator can make an application to the Adjudicating Authority seeking cooperation from an existing or ex -officer, auditor, employee, promoter or partner of the Corporate Debtor, Interim Resolution Professional, Resolution Professional or the previous Liquidator or a person who has possession of any of the properties of the Corporate Debtor.  An application can only be filed with the Adjudicating Authority only after the Liquidator has made reasonable efforts to obtain the information from such person and failed to obtain it.

DISCLAIMER OF ONEROUS PROPERTY

According to Liquidation Regulation 10, Onerous Property of Corporate Debtor comprises of land of any tenure burdened with onerous covenants; shares and stocks in companies; any other property which is not saleable or is not readily saleable by reason of the possessor thereof being bound either to the performance of any onerous act or to the payment of any sum of money; or unprofitable contracts.

There was provision for disclaimer of Onerous Property under Section 535 of Companies Act, 1956 and Section 333 of Companies Act, 2013, which was applicable during course of winding up of a company. The Supreme Court in United Bank of India¹ has observed that the objective of disclaimer of Onerous Property is to protect the creditors of the company in liquidation and not mulct them by reason of onerous covenants.  Relevant para is as under:

10.While the aforesaid direction will dispose of the appeal, we would like to say, having heard counsel on the merits of the appeal, that we are not satisfied that the Division Bench appreciated the purpose of the provisions of Section 535  of the Companies Act. Thereunder the High Court may give leave to the Official Liquidator to disclaim land of any tenure which is part of the property of the company in liquidation if it is burdened with onerous covenants. The intention of  Section 535 is to protect the creditors of the company in liquidation and not mulct them by reason of onerous covenants. The power under Section 535  is not to be lightly exercised. Due care and circumspection have to be bestowed. It must be remembered that an order permitting disclaimer, while it frees the company in liquidation of the obligation to comply with covenants, puts the party in whose favour the covenants are, to serious disadvantage. The Court must therefore, be fully satisfied that there are onerous covenants, covenants which impose a heavy burden upon the company in liquidation, before giving leave to disclaim them.

If Corporate Debtor comprises of Onerous Property, the Liquidator can file an application within six months from the liquidation commencement date or within extended period before Adjudicating Authority for disclaiming of Onerous Properties of Corporate Debtor.  Such application can be filed even if the Liquidator has endeavoured to sell or has taken possession of property or exercised any act of ownership in relation thereto or done anything in pursuance of contract.

The Liquidator cannot make such application if person interested in Onerous Property has inquired in writing whether the Liquidator has intention to make an application before the Adjudicating Authority to have such property disclaimed and the Liquidator has not communicated his intention within one month of such inquiry. The Liquidator has to serve notice at least seven days in advance to interested parties in Onerous Property or contract before making an application to the Adjudicating Authority.

A person is interested in the Onerous Property or contract if he is entitled to the benefit or subject to the burden of the contract or claims an interest in a disclaimed property or is under a liability not discharged in respect of a disclaimed property.

The disclaimer will operate to determine the rights, interest and liabilities of the Corporate Debtor   in respect of property or contract disclaimed from the date of disclaimer. Such disclaimer will not affect, rights, interests or liabilities of any other person except so far as is necessary for the purpose of releasing the Corporate Debtor and its property from its liability.

A person affected by the disclaimer is deemed to be a creditor of the Corporate Debtor for the amount of the comensation or damages payable in respect of such effect, and may accordingly be payable as a debt in liquidation under Section 53 (1) (f).

POWERS OF THE LIQUIDATOR TO ACCESS INFORMATION

The Liquidator has the power to access any information systems for the purpose of admission and proof of claim and identification of Liquidation Estate assets relating to the Corporate Debtor from the following sources:

• Information utility
• Credit Information systems regulated under any law for the time being in force
• Any agency of the Central, State or Local Government including any registration authority
• Information system for financial and non-financial liabilities regulated under any law for the time being in force
• information systems for securities and assets posted as security interest regulated under any law for the time being in force
• any database maintained by IBBI
• any other source as may be specified by IBBI

Creditor can seek any financial information from the Liquidator. The Liquidator has to provide such financial information relating to Corporate Debtor in such manner as may be specified.

TRANSFER OF DEBT DUE TO CREDITORS

A creditor may assign or transfer the debt due to him or it to any other person during the Liquidation Process in accordance with the laws for the time being in force dealing with such assignment of transfer. In such cases, both parties had to provide to the Liquidator the terms of such assignment or transfer and the identity of the assignees or transferee. The Liquidator has to modify the List of Stakeholders accordingly.

REGISTERS AND BOOKS OF ACCOUNT

The Liquidator has to maintain  various  registers  and books i.e. cash book, ledger, bank ledger, register of fixed assets and inventories, securities and investment register, register of book debts and outstanding debts, tenants register, suits register, decree register, register of claims and dividends, contributories ledger, distribution register, fee register, suspense register, documents register, books register, register of unclaimed dividends and undistributed proceeds in relation to liquidation of Corporate Debtor and the same has to be preserved for a period of eight years after the dissolution.

If books of account of the Corporate Debtor is incomplete on the liquidation commencement date, the Liquidator has to get them completed and brought up-to-date with all convenient speed as soon as the order for liquidation is passed.

EARLY DISSOLUTION  

If any time after the preparation of the preliminary report, it appears to the Liquidator that the realisable properties of the Corporate Debtor is insufficient to cover the cost of the Liquidation Process and the affairs of the Corporate Debtor do not require any further investigation, he may apply to the Adjudicating Authority for early dissolution of the Corporate Debtor and necessary directions in respect of the such dissolution.

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United Bank of India Vs. Official Liquidator; 1994 SCC (1)575