Insolvency regulator IBBI has now made it clear that major changes to liquidation process regulations during 2019 will only have a prospective effect. It has now made changes to clarify that changes to the regulations relating to contribution to liquidation costs by financial creditors or financial institutions will only apply to liquidation processes that began after July 25, 2019, the date when the winding-up process regulations were last amended on this front. .
A similar derogation will apply for regulatory changes made to the presumption of safety and the stakeholder consultation committee. Changes on these two fronts will also only apply to liquidation processes that began after July 25, 2019, the IBBI said.
To clarify gray areas
Commenting on the latest IBBI decision, Sushmita Gandhi, Partner, IndusLaw, said that the latest IBBI amendment was introduced mainly to clarify the gray area aspect on the retrospective applicability of the IBBI regulation (process of liquidation) (amendment), 2019 by which the liquidation regulations have been revised with major changes relating to the contribution to the liquidation costs, the formation of the stakeholders committee, etc.
“This amendment clears the air by clarifying that the 2019 Amendments will apply prospectively, that is, to the liquidation process commencing on or after the start of the 2019 Amendments,” she added. .
Ruby Singh Ahuja, Senior Partner, Karanjawala & Co, said the forced payment inserted through these amendments (in 2019) with respect to financial creditors has been a contentious issue for some time now, as the demand for this contribution is beyond the scope of the IBC code.
Shivek Sharma, Partner, Pioneer Legal, said the 2019 settlement introduced the requirement, among other things, for (i) financial creditor contribution to liquidation costs; (ii) the constitution of a stakeholder consultation committee composed of representatives of secured financial creditors, unsecured financial creditors, workers and employees, the government, other operational creditors and shareholders/partners to advise the liquidator on the sales issues.
The latest IBBI ruling provides language clarifying that the aforementioned requirements will apply to liquidation processes beginning on or after the effective date of the 2019 regulations, which is July 25, 2019, he said.
April 30, 2022