Taxmann's Analysis | Corporate Exit Made Easy – IBBI Takes Progressive Steps Towards Transparent Vol

Corporate Exit made easy:

IBBI takes progressive steps towards transparent voluntary liquidations

Corporate Exit made easy:

IBBI takes progressive steps towards transparent voluntary liquidations

Contents

Introduction

4

Amendment to Regulation 3; Disclosure of pendency proceedings or assessment by way of affidavit

5

Amendment to Regulation 37; Change in the timeline of conducting the contributories’ meeting

5-6

Amendment in Regulation 39; prescribes the detailed norms w.r.t claiming of amount deposited into the Corporate Voluntary Liquidation Account by the stakeholders

6-7

Conclusion

8

Introduction Earlier, the Insolvency and Bankruptcy Board of India (IBBI) on 05th October, 2023 had floated a discussion Paper for streamlining the voluntary liquidation process. Many amendments were proposed in the discussion paper including (a) Disclosure of any pending proceedings or litigation before statutory authorities by director of the corporate person, (b) Establishing a mechanism for timely reporting reasons for delay in the liquidation process, (c) mandatory declaration by a corporate person falling under the category of Financial Service Provider (FSP) etc. Many proposals are accepted and accordingly, the board has notified the amendment in Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) (Amendment) Regulations, 2024. The key amendments are discussed in detail below:

4.

Corporate Exit made easy: IBBI takes progressive steps towards transparent voluntary liquidations

1.

Amendment to Regulation 3; Disclosure of pendency proceedings or assessment by way of affidavit Regulation 3 of the IBBI (Voluntary Liquidation Process) Regulations, 2017 prescribes the conditions for liquidation proceedings of a corporate person.

Currently, the following declarations are required from the majority of directors verified by an affidavit: (a)

they have made a full inquiry into the affairs of the corporate person and they have formed an opinion that either the corporate person has no debt or that it will be able to pay its debts in full from the proceeds of assets to be sold in the liquidation

(b)

the corporate person is not being liquidated to defraud any person

As per the amended norms, the director is required to submit the disclosure about pending proceedings or assessments before statutory authorities, and pending litigations, in respect of the corporate person (clause b(iii)) Further, the director shall also verify by an affidavit that the corporate person has made sufficient provision to meet the obligations arising on account of pending matters mentioned in sub-clause (iii) of clause (b).

Intent behind the amendment The Board noticed that as of August 31, 2023, around 55% of the ongoing cases had been continuing for more than one year. Further, the Board observed that the delay is generally on account of delay in making foreign remittances, pending appeal regarding demand/ penalty imposed and refund from statutory departments and other litigations. Disclosing the pending proceedings or assessments by the directors will reduce the prolonged liquidation process, ensuring timely compliance, improving efficiency and enhancing transparency in the liquidation process.

2.

Amendment to Regulation 37; Change in the timeline of conducting the contributories’ meeting Under the extant norms, in the event of the liquidation process continuing for more than 12 months, the liquidator shall hold a meeting of the contributories of the corporate person within 15 days from the end of the 12 months from the liquidation commencement date, and at the end every succeeding 12 months till the dissolution of the corporate person.

As per the amended norms, the liquidator shall hold a meeting of the contributories of the corporate person within 15 days – (a) from the end of 270/90 days, as the case may be, and (b) thereafter at the end of every succeeding 270/90 days, as the case may be

5.

Corporate Exit made easy: IBBI takes progressive steps towards transparent voluntary liquidations

Further, the liquidator in its report shall also specify the reasons for not completing the process within the stipulated time period and the additional time required to complete the process.

Furthermore, the timeline for filing the status report by the liquidator has also been specified. Now, the liquidator shall file the Status Report with the Board within seven days of the meeting of contributories.

Intent behind the amendment The amended norms establish a mechanism for specifying reasons for the delay and additional time needed to complete the liquidation process, promoting transparency and accountability in voluntary liquidations. This streamlines the process, reduces delays and promotes efficiency in corporate liquidations.

3.

Amendment in Regulation 39; prescribes the detailed norms w.r.t claiming of amount deposited into the Corporate Voluntary Liquidation Account by the stakeholders As per Regulation 39 the liquidator shall deposit the amount of unclaimed dividends, if any, and undistributed proceeds, if any, in a liquidation process along with any income earned thereon till the date of deposit, into the Corporate Voluntary Liquidation Account.

Under the extant norms1, if a stakeholder, who claims to be entitled to any amount deposited into the Corporate Voluntary Liquidation Account, may apply to the Board in Form I for an order for withdrawal of the amount.

However, if any person other than the stakeholder claims to be entitled to any amount deposited to the Corporate Voluntary Liquidation Account, he shall submit evidence to satisfy the Board that he is so entitled.

Now, the board has specified the detailed framework in this respect by bifurcating the claim prior to dissolution and after dissolution. As per the amended norms following process is to be followed:

1

Regulation 39(7)

6.

Corporate Exit made easy: IBBI takes progressive steps towards transparent voluntary liquidations

Claim prior to dissolution of the corporate person Prior to dissolution of the corporate person, a stakeholder, who claims to be entitled to any amount deposited into the Corporate Voluntary Liquidation Account, may apply to the liquidator in Form-I for withdrawal of the amount.

On receipt of request, the liquidator after verification of the claim, shall request the Board for release of amount to him for onward distribution.

Further, the Board on receipt of request may release the amount to the liquidator.

The liquidator shall, after making the distribution to the stakeholder shall intimate the Adjudicating Authority of such distribution.

Claim prior to dissolution of the corporate person A stakeholder, who claims to be entitled to any amount deposited into the Corporate Voluntary Liquidation Account, may apply to the Board in Form-I for an order for withdrawal of the amount.

Intent behind the amendment The Board has observed a substantial increase in withdrawal requests in cases where a final report has been submitted but the dissolution order has not been passed. The time gap between the issuance of the dissolution order and the submission of the application for dissolution is growing wider.

Further, based on data available with the Board the average time taken for the dissolution of the voluntary liquidation process from the date of submission of the final report is 280 days. This leads to delays in distribution and inconvenience to claimants.

Also, the extant norms do not provide for distribution after the final report but before the issuance of the dissolution order. Therefore, there is a need to provide for distribution to these claimants as it will help them get their dues and will reduce the correspondence being made to the Board.

7.

Corporate Exit made easy: IBBI takes progressive steps towards transparent voluntary liquidations

Conclusion IBBI's recent amendments focus on three key aspects: enhanced disclosure requirements (Regulation 3), a revised timeline for contributories’ meetings (Regulation 37), and a streamlined process for claiming amounts from the Corporate Voluntary Liquidation Account (Regulation 39). These changes aim to boost transparency, reduce delays, and improve efficiency in the voluntary liquidation process.

8.

Corporate Exit made easy: IBBI takes progressive steps towards transparent voluntary liquidations

Our Associations

Income-tax Department

Indian Institute of Banking & Finance

Income-tax Appellate Tribunal

National Institute of Securities Markets An Education Initiative of SEBI

16

New ITR Forms - Changes introduced in ITR Forms for Assessment Year 2024-25

ABOUT TAXMANN

About TAXMANN Our mission at Taxmann is ‘Spearheading the pursuit of expertise & authenticity’. We at Taxmann strive to provide authentic and fastest reporting of information. We are proud to call ourselves the #1 source for everything on Tax and Corporate Laws in India. Our domain knowledge of more than 60 years has helped us in being trusted by more than 500K legal professionals across the country.

Taxmann Alliance is the only publishing house in India with complete backward and forward integration, right from self-owned paper printing unit to in-house research and editorial team, and finally reaching the readers through its own distribution network all across India. The group has also ventured into the technologies division since 2007.

Taxmann Alliance consists of four independent verticals:

Research & Editorial Taxmann Research & Editorial comprises of an enthusiastic team of over 200 Legal associates.

They are responsible for keeping the readers abreast of the latest developments in the judicial, administrative and legislative fields in the form of authentic articles and updates.

Sales & Marketing At Taxmann, we believe in marketing our products through various refined sales channels, with a diverse network of Dealers & Distributors and an in-house marketing team.

A quick preview of the strength of our sales is listed below:

Delhi-NCR

50+ Andhra Pradesh & Telangana

15+

Printing

Gujarat Maharashtra

50+

45+

Tamil Nadu Karnataka

25+

15+

Rajasthan West Bengal

10+

10+

Independent Dealers & Distributors, PAN-India

900+

Tan Prints has been carrying out specialized printing jobs since the 1980s in their beautifully landscaped facility spread over 10,000 sq. meters. Tan Prints has a strong presence in Nigeria, Ghana, Ethiopia, Rwanda, Uganda and Kenya. It not only caters to reputed Book Publishers but also Governments, Universities and Institutes.

Technologies Taxmann’s excellent team of professionals offers the best in class end-to-end website and App designing, development and maintenance solutions.

New ITR Forms - Changes introduced in ITR Forms for Assessment Year 2024-25

17

Research & Editorial 21/35, West Punjabi Bagh, New Delhi – 110026 Phone : +91-11-45662200 | E-mail : editorial@taxmann.com Printing - Tan Prints 44 Km. Mile Stone, National Highway, Rohtak Road Village Rohad, Distt. Jhajjar (Haryana) Phone : 01276-278155-56 | Mobile : 9896514100 | E-mail : sales@tanprints.com Technologies 59/32, New Rohtak Road, New Delhi - 110005 (India) | Phone : +91-11-46462222 | E-mail : technologies@taxmann.com

Delhi: 59/32, New Rohtak Road, New Delhi - 110005 (India) Tel: +91-11-45562222 | For Support Enquiry: support@taxmann.com For Sales Enquiry: sales@taxmann.com | Skype ID: taxmannindia Mumbai: 35, Bodke Building, Ground Floor, MG Road, Opp. Mulund Railway Station, Mulund (W), Mumbai - 400080 Tel: +91-022-25934806/07/09, 25644807 | Mobile: 09322247686, +91-9619668669 Email: sales.mumbai@taxmann.com, nileshbhanushali@taxmann.com Ahmedabad: 7, Abhinav Arcade, Ground Floor, Nr. Bank of Baroda, Pritam Nagar Paldi, Ahmedabad - 380007 Tel: +91-079-26589600/02/03 | Mobile: +91-9909984900, 9714105770, 9714105771 Email: bdurgaprasad@taxmann.com, sales.ahmedabad@taxmann.com Hyderabad: 4-1-369-Indralok Commercial Complex Shop No. 15/1 - Ground Floor, Beside Hotel Jaya International Reddy Hostel Lane Abids Hyderabad - 500001 Mobile: +91-9391041461/09322293945 | Email: bdurgaprasad@taxmann.com, sales.hyderabad@taxmann.com Pune: Office No. 14, First Floor, Prestige Point, 283 Shukrwar Peth, Opp.Chinchechi Talim, Nr. BSNL office, Bajirao Road, Pune - 411002 Mobile: 9822411811, 9834774266, 9322293945 | Email: sales.pune@taxmann.com

For Contact & Assistance: Tel. : +91-11-45562222 | E-mail : support@taxmann.com, sales@taxmann.com

www.taxmann.com

Follow us

18

New ITR Forms - Changes introduced in ITR Forms for Assessment Year 2024-25