IBBI to tighten voluntary liquidation regulations; liquidators have to explain delay

Liquidators of stressed firms seeking voluntary liquidation will have to explain to the bankruptcy watchdog their failure in completing the task on time and give a deadline for wrapping up the process, according to the proposals by the regulator to expedite the exit process of sick businesses.

Currently, liquidators are supposed to complete such processes within either 90 days or 270 days, depending on the cases. But in most cases, deadlines are missed, causing severe erosion of the stressed asset value.

Proposing half-a-dozen changes to its regulations on voluntary liquidations, the Insolvency and Bankruptcy Board of India (IBBI) has also asked the directors of such stressed firms to disclose pending litigations or proceedings involving statutory authorities about the companies.


Stakeholders have been asked to submit by October 26 their comments on the IBBI’s voluntary liquidation regulations.

“If the liquidator fails to liquidate the corporate person within stipulated period of 90 days or 270 days as the case may be, he shall hold a meeting of contributories of the corporate person and file within fifteen days after the end of the quarter in which the stipulated period for completion of liquidation has expired, a status report to the Board explaining why the liquidation has not been completed and specify, along with reasons, the additional time that shall be required for completing the process,” the IBBI said in the proposed regulations.

For initiating voluntary liquidation, a financial service provider has to obtain prior permission of the appropriate regulator (mainly the Reserve Bank of India), the regulator said.

“Where a request for withdrawal (of voluntary liquidation) is received from the claimant, the Board shall direct the liquidator in all such cases where dissolution order has not been passed, for verification of the claim,” the regulator said.

Such a verification will include checking the legitimacy of the claim, the amount involved, and any other relevant details. “Post verification, the liquidator shall submit their findings and opinion to the IBBI to enable it to permit withdrawal even before dissolution,” it said.

As of August 2023, of the 408 cases where voluntary liquidation process has started, the final report has been filed in only 175 cases, showed the IBBI data. The liquidators of these 175 cases took an average of 155 days to submit the report and in only 64 of these cases, the report was filed within (the stipulated) 90 days.