The insolvency regulator has proposed new measures to expedite liquidation process under the Insolvency and Bankruptcy Code (IBC) for faster and better recovery for creditors. A draft paper released by the Insolvency and Bankruptcy Board of India (IBBI) has proposed that those assets which are not easily converted into cash during the liquidation process must be distributed among creditors, and the liquidation process closed.
The paper argues that at the time of liquidation, there are assets which require an indefinite time for realisation on account of their peculiar nature or special circumstances. "Such assets fall in the category of sundry debts, including refunds from Government and its agencies; contingent receivables, disputed receivables, sub-judice receivables, disputed assets (where, for example, legal ownership is not clear), and assets underlying avoidance transactions," says the paper.
And since value of these assets is not easily realisable, it takes indefinite time for completing the liquidation process. Similarly, it talks about transfer of debts to third party during the liquidation process so that a creditor, not willing to wait for the liquidation process, may sell off the debt to be recovered through the liquidation process to a third party and make an exit.
The draft paper says: "A creditor files its claim and thereafter, waits for the liquidator to make realisation and distribute it as per the waterfall mechanism. This whole process is time consuming and some stakeholders may like to assign their interests and move on. The same is allowed during corporate insolvency process (CIRP)."
Therefore, it proposes a similar provision to enable exit of stakeholders who cannot wait or who are in urgent need of liquidity. The draft paper has been made available for public consultation and comments. The insolvency law requires the liquidation process to end in a year, but that is hardly the case as liquidation process could drag on for years. In the three and half years, only 56 cases of the 914 liquidation cases have seen final closure.