Apr 01, 2017

Insolvency and Bankruptcy Code, 2016 Update

The provisions of the Insolvency and Bankruptcy Code, 2016 (“IBC”) dealing with (i) voluntary liquidation of corporate persons; and (ii) setting up and regulation of information utilities (“IUs”) were notified by the central government with effect from April 1, 2017. Additionally, the Insolvency and Bankruptcy Board of India (“IBBI”) simultaneously notified:

a. The Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017 (“Voluntary Liquidation Regulations”); and

b. The Insolvency and Bankruptcy Board of India (Information Utilities) Regulations, 2017 (“IU Regulations”).

This update discusses the important provisions of the Voluntary Liquidation Regulations and IU Regulations.


Section 59 of the IBC provides a mechanism for the voluntary liquidation of corporate persons which have not committed a payment default. To initiate a voluntary liquidation proceeding, the majority of the directors or designated partners of the corporate person (as the case may be) must make a declaration that:

a. They have made a full enquiry into the affairs of the corporate person;

b. In their opinion, the corporate person has no debt or that it will be able to pay its debt in full, from the proceeds of the assets sold under the proposed liquidation; and

c. The corporate person is not being liquidated to defraud any person.

The Voluntary Liquidation Regulations lay down the conditions and procedural requirements for conducting the voluntary liquidation process, the salient features of which are discussed below.

Who may be appointed as a liquidator in a voluntary liquidation?

The Voluntary Liquidation Regulations lay down the eligibility for insolvency professionals (“IPs”) proposed to be appointed as liquidators. They include that the proposed IP and every director or partner of an insolvency professional entity (“IPE”) that such proposed IP is part of:

a. Must be independent of the corporate person;

b. Must not be under a restraint order of the IBBI; and

c. Must not represent other stakeholders in the same liquidation process.

Other features

The Voluntary Liquidation Regulations further provide for the following:

a. Process of commencement of voluntary liquidation;

b. Manner of appointment and remuneration of liquidators and their powers and functions;

c. Process for submitting proof of claims by creditors;

d. Sale of assets comprising the liquidation estate;

e. Distribution of proceeds to stakeholders; and

f. Dissolution of the corporate person.

Applicability of other provisions of IBC

Other provisions dealing with the liquidation of a corporate debtor (which has made a payment default) contained in sections 35-53 of the IBC continue to be relevant even in a voluntary liquidation conducted under section 59 of the IBC. For instance, preferential transactions, undervalued transactions, transactions defrauding creditors and extortionate credit transactions must be reviewed by the liquidator and may be set aside by the National Company Law Tribunal (“NCLT”).


The Voluntary Liquidation Regulations are a significant departure from the process of voluntary liquidation under the Companies Act, 1956. They introduce a streamlined and more efficient regime in which the liquidation is conducted by independent IPs in a timely manner. This will prove to be of great value particularly to sponsors of special purpose vehicles which have served their limited purpose and foreign investors with commercially unviable subsidiaries which are otherwise solvent and need to be wound up.


What is an IU?

IUs are intended to be electronic databases which store financial information about borrowing entities submitted by interested parties. The scheme of the IBC provides that details of both financial as well as operational debt may be filed with IUs. In addition, information relating to security interests created under debt documents, notice of any dispute raised by a corporate debtor in relation to the existence of an operational debt and record of assets and liabilities of corporate debtors may also be submitted to an IU.

Who can be registered as an IU?

The IU Regulations set out the following eligibility criteria for a person to register as an IU:

a. It must be a public limited company with minimum net worth of INR 50 crores;

b. It must not be controlled by person(s) resident outside India;

c. A person resident outside India must not (directly or indirectly) hold more than 49% of the equity shares of the IU;

d. The IU, its promoters, directors, key managerial personnel and persons holding more than 5% of its equity shares must be ‘fit and proper persons’;

e. The maximum shareholding of the IU by a single person should not be more than 10% of equity share capital of the IU; and

f. Any government company, public financial institution, stock exchange, depository, bank or insurance company may (by itself or collectively) hold up to 25% of the equity share capital of the IU.

The IBC does not contemplate the existence of a single state sponsored IU. The IBBI will license and regulate multiple IUs which can be privately owned and compete with each other on the basis of services offered and fee charged.

Other features

The IU Regulations also provide for:

a. A framework for registration and regulation of IUs;

b. Guidelines on shareholding and governance of IUs;

c. Specifications on technical standards and bye laws to be adopted by the IU for performance of its core services;

d. Duties and services to be performed by an IU; and

e. Grievance redressal policy in order to safeguard the interests of the user.


IUs will play a vital role in the CIRP and liquidation processes. A readily accessible record of debt and the dates of default will aid the NCLT in reviewing an application to commence a CIRP more expeditiously.

The notification of the IU Regulations is a major milestone in implementation of the IBC. However, it remains to be seen how quickly market participants are able to set up IUs, how the IBBI will ensure fair competition between multiple IUs and how easily accessible and secure the stored data will be.


Pursuant to section 55 of the IBC, a fast track process (“Fast Track CIRP”) is available for corporate debtors with relatively low levels of assets and income; and such class of creditors or such amount of debt as may be notified by the central government.

Fast Track CIRP provides for the insolvency resolution to take place in a more condensed period of 90 days (extendable by a maximum of another 45 days). Fast Track CIRP will be of use for smaller companies with uncomplicated balance sheets which are capable of being resolved within more strict timelines.

Chapter IV (of Part II) of the IBC dealing with Fast Track CIRP has not been notified yet.professionals.




These are the views and opinions of the author(s) and do not necessarily reflect the views of the Firm. This article is intended for general information only and does not constitute legal or other advice and you acknowledge that there is no relationship (implied, legal or fiduciary) between you and the author/AZB. AZB does not claim that the article's content or information is accurate, correct or complete, and disclaims all liability for any loss or damage caused through error or omission.