Incases where the resolution plan is either not submitted on time or where the resolution plan so submitted is disapproved by the adjudicating authority, the authority may pass an order for the liquidation of the corporate person. The process of liquidation involves the following steps:-

Passing of order of Liquidation

Appointment of Liquidator

Formation of liquidation estate

Submission and verification of claims by liquidator

Distribution of Proceeds according to priority of Claims

i. Passing of Liquidation Order

The adjudicating authority may pass an order of the liquidation of the corporate debtor in the following circumstances-

if the resolution plan is not submitted within the prescribed time period or rejected by the adjudicating authority resolution professional intimates the adjudicating authority of the decision of committee of creditors to liquidate the corporate debtor at any time during the corporate insolvency resolution process nut before confirmation of the resolution plan resolution plan does not meet the minimum requirement guidelines prescribed under the code

creditors committee does not reach an agreement during the stipulated period of 180 days or an extended period or

the corporate debtor fail to adhere to the terms of the approved resolution plan

After an order of liquidation is made by the adjudicating authority, it shall make a public announcement to that effect.

ii. Appointment of Liquidator

Once the adjudicating authority passes an order of liquidation of the corporate debtor, the resolution professional appointed for the corporate insolvency resolution process shall act as a liquidator for the purpose of liquidation. On the appointment, the liquidator has all the powers as are vested in board of directors, key managerial personnel and partners of the corporate debtor. The personal of corporate debtor shall provide assistance and cooperation to the liquidator in managing the affairs of the corporate debtor.

Some of the powers and duties of the liquidator are

to verify the claims of all the creditors,

to take into his custody and or control all the assets or property of the corporate debtor and evaluate them,

to carry on the business of the corporate debtor investigate the financial affairs of the corporate debtor ,

to take all the measures to protect and preserve the assets and property of the corporate debtor

to sell the immovable and movable property and actionable claims of the corporate debtor in liquidation by public auction or private contract,

to invite and settle claims of creditors and claimants and distribute proceeds

to investigate the financial affairs of the corporate debtor to determine undervalued or preferential transactions

to apply to adjudicating authority for any orders that may be necessary for the liquidation of the corporate debtor and to report the progress of liquidation process to the Board etc.

iii. Creation of Liquidation Estate

To ease the process of liquidation, the liquidator forms an estate of the assets of the corporate data which is called the liquidation estate in relation to the corporate debtor. The liquidator holds the liquidation estate as a fiduciary for the benefit of all the creditors. This liquidation estate includes any asset over which the corporate debtor has the ownership right or any tangible asset whether movable or immovable or any intangible asset including the intellectual property, securities and financial instrument, insurance policy, assets subject to the determination of ownership by Court or authority, any asset of the corporate debtor in respect of which a secured creditor has relinquished security interest, any other property belonging to the corporate debtor and all the proceeds of liquidation as and when they are released.

iv. Submission of Claims and Verification by Liquidator

After the commencement of the liquidation process the liquidator shall receive or collect the claims of the creditor within thirty days of date of commencement of liquidation process. A financial creditor may submit a claim to the liquidator by providing a record of such claim with an information utility whereas an operational creditor may submit a claim to the liquidator in such form and in such manner and along with such supporting documents required to prove the claim as are directed by the Board. It shall be the duty of the liquidator to verify the claims submitted to him within such time as may be specified by the Board and for this purpose he may require any creditor or the corporate debtor or any other person to produce any other document or evidence which he thinks necessary. The liquidator has the power 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 any source such as an information utility, credit information systems regulated, any agency of the Central, State or Local Government, information systems for financial and non-financial liabilities, information systems for securities and assets posted as security interest regulated and any database maintained by the Board.

Once the claims have been verified, the liquidator either admits or rejects the claim in whole or in part and communicates his decision to the creditor and the corporate debtor within 7 days. However, incase the liquidator reject the claim of a creditor then the such creditor have an option of filing an appeal to the adjudicating authority against the decision of the liquidator but same has to be filed within fourteen days of receiving such decision. The liquidator also has to determine the value of the claims admitted by him.

v. Distribution of proceeds according to Priority of claims

The code provides for a priority waterfall for distribution of liquidation proceeds. The proceeds from the sale of liquidation assets shall be distributed in the following order of priority-

the insolvency resolution process cost and the liquidation cost to be paid in full

claim of secured creditor who has relinquished security and workmen dues  for the period of 24 months prior to the liquidation commencement date would on equal footing

employees wages, salary or any other unpaid dues other than the workman limited to 12 months prior to the commencement of liquidation

financial debt owed to unsecured creditor

any amount of due to the relevant State Government or the Government of India (capped at 2 years before the commencement of liquidation) and unpaid dues of the secured creditor after the enforcement of security interest would rank paripassu.

if any remaining that and use if anything is left after paying the death the claims of preference and equity shareholders are satisfied in that order.

Notably by putting the unrealized part of a secured creditor’s claim that enforces security interest outside liquidation, to a position subordinated to unsecured  creditors, it gives a positive temptation to secured creditors to relinquish security interest and join the normal sequence of winding up.

By MEHR KAUR