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Insolvency and Bankruptcy Board clarifies calculation of liquidator's fees

IBBI also said that there was a gap in understanding in the market about what components of the liquidation cost are to be excluded to derive "other liquidation cost"

Insolvency professionals, resolution professionals, RPs

Illustration: Binay Sinha

Ruchika Chitravanshi New Delhi

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The Insolvency and Bankruptcy Board of India (IBBI) has clarified that the calculation of the liquidator’s fee has to be done as a percentage of the amount realised from assets, and not cash and bank balance, including term deposit, mutual fund, and quoted share available on start of the liquidation process. 

The IBBI also said that there was a gap in understanding in the market that components of the liquidation cost are to be excluded to derive “other liquidation cost”. This amount is to be deducted from the realisation amount while calculating the liquidator’s fee.

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The insolvency regulator said that in some cases, liquidators exclude the cost incurred in preserving and protecting the assets of the corporate debtor (CD), and running the CD is a growing concern to calculate “other liquidation cost”.

The IBBI also observed that the liquidators are suo-moto (on their own) excluding various time periods such as stay by court on sale of a particular asset and delay in relinquishment by secured creditor for the purpose of calculating the fee. 

While clarifying the period for calculation of liquidator’s fee, the regulator said, “Any such exclusion should have a stamp of judicial authority and should only be for the asset for which such exclusion has been granted.” 

In its notification, the IBBI has also asked the insolvency professionals to inform the Board that their fees have been charged in accordance with its latest clarification. It has also added, “in cases where excess liquidator’s fee is returned and distributed on or before October 31, 2023, no disciplinary proceedings will be initiated on the ground that the excess fee was charged and has now been returned.”

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First Published: Sep 28 2023 | 5:59 PM IST

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