The Insolvency and Bankruptcy Board of India (IBBI) has changed the process of liquidation to make it time-bound. The new rules say that the process must be finished within one year of its commencment.
The new regulations also say that a compromise between the stakeholders must happen within 90 days of the liquidation order.
The amendment requires the financial creditors to contribute towards the liquidation costs, when the company does not have resources. This can be recovered with interest later.
When a company is up for liquidation, the rules mandate that every part of the company— employees, financial creditors, etc.— must form a committee, which would advice the official liquidator on the sale process. The company will also not be dissolved, even if it still has a going concern.
The government tabled these amendments to the Insolvency and Bankruptcy Code in Parliament recently. These mandate completion of the process within 330 days, after which the debtor company goes for liquidation. This is an increase from the existing 270 days.
At the liquidation stage, the order of payments would the insolvency process costs, dues of workmen, secured creditors, unsecured creditors, statutory dues and then operational, according to the planned new amendments to the Code.