Strict timelines: In contrast to the old law, the Regulations impose specific timelines for each stage of the liquidation process. For example, the liquidation must be completed within 2 years and the liquidator can only obtain an extension from the NCLT after specifying why there was a delay and the period of time for which an extension is sought. The percentage fees payable to a liquidator from the sale of assets and/or for the distribution of assets is set to a graded scale which incentivizes the liquidator to act promptly. However, unlike under the old law, a liquidation can only be initiated if a corporate debt restructuring process under the Code (known as a resolution process) has been initiated and no resolution plan on restructuring has been reached within the timelines specified in the Code or if certain other specified criteria aren’t met.3 International creditors must rely on the tools available under the corporate debt resolution process to ensure that there is no siphoning of company assets that could affect their recovery in a liquidation. While these tools appear generally adequate to protect the rights of international creditors, as with the liquidation regime, these are currently untested in practice.
Transparent and standardized processes for each stage of the liquidation: The Regulations are fairly formulaic in that they seek to dictate the procedure for each stage of the liquidation process in granular detail. The Regulations specify how each category of creditor is to file its proof of debt. The liquidator is obliged to obtain estimates of the realizable value of assets "in accordance with internationally valuation standards" (undefined) from any two registered valuers and the value of the assets is an average of these estimates. The default position is for any sale of assets to be conducted on an auction basis with a private sale permitted only in limited circumstances. The liquidator is however empowered to decide whether to sell the assets on a standalone or a collective basis. The Regulations prescribe a formula for debts which are not yet due (based on the net present value of government securities) and empower the liquidator to make the “best estimate” in situations wherein an amount claimed is not precise because of a contingency or any other reason. The value of any foreign currency debt is calculated based on the exchange rate prevailing at the commencement of the liquidation. continued on next page
______________________________________________________________________
3The Code requires the resolution plan to be agreed to by 75% of the financial creditors within a 180-day period failing which a one-time extension of 90 days may be granted by the NCLT. In addition, a liquidation can be triggered if (i) the NCLT rejects the resolution plan for failing to provide for the payment of the costs of the resolution process or to pay operational creditors, at a minimum, the liquidation value of their debt or certain other criteria; (ii) financial creditors holding a minimum of 75% of the aggregate debt due to them agree to liquidate the corporate debtor at any time during the resolution process; or (iii) a corporate debtor violates the terms of an approved resolution plan.