More Transparency in Liquidation: Stakeholders Get a Seat at the Table with IBBI Reforms

The Insolvency and Bankruptcy Board of India (IBBI) has taken a significant step towards enhancing transparency in liquidation cases by amending its regulations. These changes, announced on February 12th, 2024, introduce a consultative committee of stakeholders (SCC), granting them a direct say in the liquidation process.

What’s Changing?

Previously, the liquidator, appointed to oversee the company’s dissolution, held primary decision-making power. Now, an SCC, comprising creditors, employees, operational stakeholders, and government representatives, will be actively involved in crucial decisions. This includes:

• Approving litigation and other liquidation costs: This ensures funds are used judiciously and stakeholders have a say in their expenditure.
• Cost-benefit analysis of key steps: Stakeholders can evaluate proposed actions and offer valuable insights.
• Decisions on running the company as a going concern: In some cases, continuing operations might maximize value, and the SCC will have a voice in this decision.
• Approvals for private sales, fresh valuations, and sale confirmation: This increases transparency in asset sales and distribution of proceeds.

Benefits of Increased Transparency:

• Enhanced Trust: Stakeholder involvement fosters trust in the process, minimizing disputes and delays.
• Informed Decisions: Collective wisdom from diverse stakeholders can lead to better-informed decisions.
• Improved Recovery Rates: Transparent processes potentially lead to higher asset valuations and recoveries for all stakeholders.
• Accountability: The liquidator is now accountable to the SCC, promoting responsible conduct.

Challenges and the Road Ahead:

While the reforms are promising, challenges remain. Effective implementation requires:

• Clear guidelines: The roles and responsibilities of the SCC need to be clearly defined to avoid confusion and conflict.
• Capacity building: Stakeholders need training and resources to participate effectively.
• Timely communication: Open communication between the liquidator and SCC is crucial.

Overall, the IBBI’s reforms mark a positive step towards a more transparent and inclusive liquidation process. By empowering stakeholders, it holds the potential to improve outcomes for all involved.