Circumstances Leading to Liquidation under IBC
Liquidation is the final stage in the insolvency resolution process under the Insolvency and Bankruptcy Code (IBC), 2016. It signifies the end of a corporate debtor's existence when its assets are sold to pay off its debts. Understanding the circumstances that trigger this process is crucial for legal practitioners.
Key Triggers for Liquidation
Several scenarios can lead to a corporate debtor being pushed into liquidation. These are primarily governed by the IBC and are often a consequence of the failure of the Corporate Insolvency Resolution Process (CIRP).
Specific Scenarios Leading to Liquidation
Beyond the general failure of CIRP, specific situations can also precipitate liquidation.
The NCLT has the power to order liquidation if it is satisfied that the corporate debtor cannot be revived or if the CIRP has failed.
| Scenario | IBC Section Reference | Outcome |
|---|---|---|
| Failure to approve Resolution Plan | Section 31(1) & 33(2) | Liquidation Order |
| CIRP Period Expiry without Resolution | Section 33(2) | Liquidation Order |
| CoC votes for Liquidation | Section 33(2) | Liquidation Order |
| Non-implementation of Resolution Plan | Section 34(4)(a) | Liquidation Order |
| Liquidation of Personal Guarantors | Section 120 | Liquidation of Guarantor's Assets |
It's important to note that liquidation is considered a last resort. The IBC prioritizes the revival of the corporate debtor over its dissolution.
Liquidation of Personal Guarantors
The IBC also provides for the liquidation of personal guarantors to corporate debtors. If a resolution plan is not approved for the corporate debtor, or if the corporate debtor is ordered to be liquidated, the personal guarantor's liability can be enforced. This often leads to the liquidation of the personal guarantor's assets to satisfy the debt.
The process of liquidation involves the appointment of a Liquidator who takes control of the corporate debtor's assets. The Liquidator's primary role is to sell these assets in a manner that maximizes value and distribute the proceeds to creditors in accordance with the waterfall mechanism prescribed by the IBC. This mechanism prioritizes secured creditors, workmen's dues, and then unsecured creditors. The process is overseen by the Adjudicating Authority (NCLT).
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Consequences of Liquidation
Liquidation brings an end to the corporate debtor's business operations. The company ceases to exist as a going concern, and its assets are liquidated to satisfy its debts. The focus shifts from revival to orderly winding up and distribution of assets.
Learning Resources
The official and most up-to-date text of the Insolvency and Bankruptcy Code, 2016, essential for understanding all aspects of the process, including liquidation triggers.
Official guidance and regulations from IBBI on the liquidation process, providing a clear overview of procedures and legal framework.
A detailed article explaining the nuances of the liquidation process, including the circumstances that lead to it and the role of the liquidator.
This resource offers a comprehensive overview of liquidation under IBC, covering its initiation, process, and implications for stakeholders.
Access to the rules and regulations framed by the National Company Law Tribunal (NCLT) that govern the procedural aspects of liquidation.
A search portal to find landmark court decisions and case law related to liquidation under the IBC, crucial for understanding judicial interpretations.
An in-depth look at the responsibilities and powers of a liquidator appointed under the IBC, which is central to the liquidation process.
This article clearly distinguishes between CIRP and liquidation, highlighting the conditions under which one transitions to the other.
Explains the priority of payments to creditors during liquidation, a critical aspect of the winding-up process.
A visual explanation of the liquidation process under IBC, offering a different perspective on the topic. (Note: A specific, high-quality video on this exact subtopic might require a search on platforms like YouTube using keywords like 'IBC Liquidation Process Explained' or 'Circumstances leading to IBC Liquidation').