Powers and Functions of Liquidator under IBC

The Insolvency and Bankruptcy Code, 2016 (IBC) is a comprehensive legislation designed to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons, partnership firms, and individuals in a time-bound manner. When the corporate insolvency resolution process (CIRP) fails and no resolution plan is approved, the Adjudicating Authority (National Company Law Tribunal) orders the liquidation of the corporate debtor. At this stage, a liquidator is appointed to take charge of the entire process.

The role of the liquidator is crucial because the entire liquidation procedure revolves around the efficient and fair conduct of liquidation, protection of assets, verification of claims, and distribution of proceeds. The liquidator functions as the custodian and legal representative of the corporate debtor during the liquidation phase.

Who is a Liquidator?

A liquidator is an insolvency professional appointed by the Adjudicating Authority under Section 34 of the Insolvency and Bankruptcy Code, 2016. Once appointed, the liquidator replaces the powers of the board of directors, key managerial personnel, and partners of the corporate debtor. All their powers stand vested in the liquidator. In simple terms, the liquidator becomes the authorised person to manage and wind up the affairs of the company under liquidation.

The purpose of this appointment is to ensure that the assets of the corporate debtor are collected, preserved, evaluated, and distributed among creditors in accordance with the Code.

Appointment of the Liquidator

Under Section 34 of the IBC, when the Adjudicating Authority passes an order for liquidation of a corporate debtor, the resolution professional appointed during the CIRP usually becomes the liquidator. However, the Adjudicating Authority may replace the liquidator in certain circumstances. These include:

1. When the resolution plan submitted by the resolution professional under Section 30 is rejected for non-compliance with Section 30(2);
2. When the Insolvency and Bankruptcy Board of India (IBBI) recommends replacement of the resolution professional for recorded reasons; or
3. When the resolution professional fails to give written consent to act as the liquidator.

If the resolution professional is replaced, the Adjudicating Authority directs the IBBI to propose a list of eligible insolvency professionals within ten days, along with their written consent. Based on the proposal, the Authority appoints a suitable professional as the liquidator.

Once appointed, the liquidator is required to make a public announcement, invite claims, verify them, and proceed with the liquidation as per the Code.

Statutory Basis: Section 35 of the IBC

Section 35 of the Insolvency and Bankruptcy Code enumerates the powers and duties of the liquidator. These powers are subject to directions from the Adjudicating Authority and are meant to ensure an orderly and transparent liquidation process. Section 35 provides a non-exhaustive list, meaning the liquidator may also perform other necessary functions not explicitly mentioned, as long as they fall within the scope of the liquidation proceedings.

Powers and Duties of the Liquidator

Verification of Claims

One of the primary duties of the liquidator is to verify the claims submitted by all creditors. This step ensures that only legitimate creditors participate in the distribution of proceeds. The liquidator consolidates all claims, maintains records, and decides whether to admit or reject them. The verification process must follow the timelines and procedures laid down in the IBBI (Liquidation Process) Regulations.

Custody and Control of Assets

The liquidator takes custody or control of all the assets, properties, effects, and actionable claims of the corporate debtor. This prevents any misuse, loss, or unauthorised transfer of assets during the process. The liquidator assumes control over all bank accounts, movable and immovable properties, and records of the company.

Evaluation and Reporting

The liquidator is required to evaluate the assets and property of the corporate debtor in the manner specified by the IBBI. After evaluation, a report is prepared outlining the value of assets and the proposed method of realisation. This evaluation helps in determining the liquidation value and ensures that the sale or distribution process is based on accurate data.

Protection and Preservation of Assets

Under Section 35(d), the liquidator must take necessary measures to protect and preserve the assets of the corporate debtor. This may include securing premises, insuring valuable assets, preventing theft, and ensuring that no fraudulent disposal of property occurs.

Carrying on Business for Beneficial Liquidation

The liquidator can continue to operate the business of the corporate debtor if it is necessary for the beneficial completion of liquidation. For instance, running the business for a short period may yield better value for assets or help complete existing contracts. However, such operations must be prudent and aimed solely at maximising value for stakeholders.

Sale of Assets

The liquidator has the authority to sell both movable and immovable properties of the corporate debtor. The sale can be done through a public auction or private contract, with the power to transfer the assets to any person or body corporate. However, such sales are subject to Section 52, and the liquidator cannot sell assets to persons who are ineligible to be resolution applicants under Section 29A of the Code.

The sale may also be done in parcels if that approach is more beneficial. The liquidator must follow the sale process as per the Liquidation Regulations to maintain transparency and fairness.

Power to Draw and Endorse Negotiable Instruments

The liquidator may draw, accept, make, or endorse negotiable instruments such as cheques and bills of exchange on behalf of the corporate debtor. Such actions have the same legal effect as if they were executed by the company itself before liquidation. This helps the liquidator carry out business transactions smoothly during the liquidation phase.

Collection of Money from Deceased Contributories

In some cases, contributories (persons liable to contribute to the assets of the company) may be deceased. The liquidator has the authority to take out letters of administration in his official name to recover money due from their estates. The amount is deemed to be due to the liquidator personally for the purpose of recovery.

Appointment of Professionals

As per Section 35(i) and Regulation 7 of the Liquidation Regulations, the liquidator may obtain professional assistance or appoint experts such as valuers, accountants, legal advisors, or technical consultants. Their remuneration is considered part of the liquidation cost. However, certain restrictions apply. A liquidator cannot appoint a professional who is:

• A relative of the liquidator;
• A related party of the corporate debtor; or
• Has served as an auditor of the corporate debtor in the five years preceding liquidation.

Settlement and Distribution of Claims

After verification and admission of claims, the liquidator invites and settles them in accordance with the provisions of the Code. Once the liquidation estate is realised, the proceeds are distributed among creditors based on the priority order specified under Section 53 of the IBC. This ensures equitable distribution among all stakeholders.

Legal Proceedings

The liquidator has the authority to institute or defend any legal proceedings, whether civil or criminal, in the name of the corporate debtor. This includes recovery suits, avoidance applications, or defending cases filed against the company. The liquidator acts as the legal representative of the corporate debtor during such proceedings.

Investigation of Transactions

The liquidator investigates the financial affairs of the corporate debtor to identify any preferential, undervalued, fraudulent, or extortionate credit transactions. If such transactions are discovered, the liquidator can file an application before the Adjudicating Authority to reverse or set them aside. This helps in preventing unjust enrichment of certain parties and ensures fairness in distribution.

Execution of Documents

The liquidator is empowered to sign, execute, and verify any documents, deeds, receipts, applications, affidavits, or bonds on behalf of the corporate debtor. For such purposes, the liquidator may use the company’s common seal, if any. This legal authority enables smooth functioning of the liquidation process.

Reporting and Seeking Directions

The liquidator must report the progress of the liquidation process to the Adjudicating Authority as per the timelines prescribed by the IBBI. The liquidator can also seek necessary orders or directions from the Authority whenever required for the effective completion of liquidation.

Consultation with Stakeholders

Under Section 35(2), the liquidator may consult stakeholders who are entitled to a distribution of proceeds under Section 53. However, such consultation is not binding on the liquidator. The records of these consultations must be made available to all other stakeholders in a manner specified by the Board, ensuring transparency and fairness.

Additional Powers under Section 37

Section 37 of the IBC provides that the liquidator may access any information system for the purpose of verifying claims and identifying assets forming part of the liquidation estate. The liquidator may obtain information from sources such as:

• Information Utilities,
• Credit Information Systems,
• Government agencies, and
• Databases maintained by the IBBI or other regulators.

This power ensures that the liquidator has access to reliable data for effective verification and realisation of assets.

Distribution of Proceeds and Dissolution

After realising all assets and settling liabilities, the liquidator distributes the proceeds in accordance with the priority list under Section 53 of the Code. Once the assets are liquidated and proceeds distributed, the liquidator makes an application to the Adjudicating Authority for the dissolution of the corporate debtor. Upon approval, the name of the company is struck off from the register of companies, marking the completion of the liquidation process.

Conclusion

The liquidator plays a central role in ensuring that the liquidation process is fair, efficient, and transparent. The powers conferred under Section 35 and related provisions enable the liquidator to act independently while ensuring accountability to the Adjudicating Authority. 

From verifying claims to managing assets, investigating transactions, and distributing proceeds, every step of the liquidation process depends on the liquidator’s diligence and integrity.

In essence, the liquidator acts as both a trustee and executor of justice in the winding-up process. Effective discharge of these powers and functions under the IBC ensures that stakeholders’ interests are safeguarded, value is maximised, and the objectives of the Code are fulfilled.