Overview on Initiation of Liquidation under the IBC

Initiation of Liquidation under the IBC

Who can order for Liquidation?

• “Adjudicating Authority”, for the purposes of Insolvency and Bankruptcy Code, means National Company Law Tribunal constituted under section 408 of the Companies Act, 2013.

When can be liquidation order can be pass by NCLT ? 

Initiation of Liquidation ( Section 33 on IBC) 

The liquidation order can be passed:-

• Where the NCLT (Adjudicating Authority) does not receive a resolution plan
  • before the expiry of Corporate Insolvency Resolution Process (under Section 30(6) of IBC) OR
  • any permitted extended date by NCLT (under Section 33(1)(a))
• The NCLT rejects the resolution plan under Section 31 for the            non-compliance of the requirements specified therein – (under Section 33(1)(b))

• Where the resolution professional, at any time during the Corporate Insolvency Resolution Process but before confirmation of resolution plan, intimates the NCLT of the decision of the COC (approved by not less than 66% of the voting share) to liquidate the corporate debtor, the adjudicating authority shall pass a liquidation order.- (under Section 33(2))

• The Committee of Creditors may take the decision to liquidate the corporate debtor, any time after its constitution under Section 21(1) and before the confirmation of the resolution plan, including at any time before the preparation of the information memorandum
• Where the resolution plan approved by the NCLT is contravened by the concerned corporate debtor, any person other than the corporate debtor, whose interests are prejudicially affected by such contravention, may make an application to the NCLT for a liquidation order- Section  33(3) and,
• if the adjudicating authority determines that the corporate debtor has contravened the provisions of the resolution plan, it shall pass a liquidation order.

Immediate Effects of Liquidation Order by NCLT

When a liquidation order has been passed:-

• No suit or other legal proceeding shall be instituted by or against the corporate debtor- Section 33(5).
• Provided that a suit or other legal proceeding may be instituted by the liquidator, on behalf of the corporate debtor, with the prior approval of the Adjudicating Authority.
• IBC Provisions of Section 33(5) shall not apply to legal proceedings in relation to such transactions as may be notified by the central government in consultation with any financial sector regulator.
• The order for liquidation shall be deemed to be a notice of discharge to the officers, employees and workmen of the corporate debtor, except when the business of the corporate debtor is continued during the liquidation process by the liquidator.
• All powers of the Board of Directors , Key Managerial Personnel’s & partners of the corporate debtors, as the case may be, shall cease to have effect and be vested in the liquidator.

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