Understanding the Order of Liquidation by the NCLT under IBC

The Insolvency and Bankruptcy Code (IBC), 2016, provides a structured framework for resolving insolvency and bankruptcy. A critical stage within this process is the 'Order of Liquidation' issued by the National Company Law Tribunal (NCLT). This order signifies the end of the resolution process and the commencement of the liquidation of a corporate debtor's assets to repay its creditors.

When is an Order of Liquidation Issued?

An order for liquidation is typically passed by the NCLT under specific circumstances. These include situations where:

<ul><li>The Committee of Creditors (CoC) resolves to liquidate the corporate debtor.</li><li>The resolution plan submitted is rejected by the CoC.</li><li>The resolution plan is not submitted within the stipulated time frame.</li><li>The NCLT is satisfied that the corporate debtor cannot be revived and liquidation is the only viable option.</li></ul>

What is the primary body responsible for passing an order of liquidation under the IBC?

The National Company Law Tribunal (NCLT).

Key Components of the Liquidation Order

Once the NCLT passes an order for liquidation, several significant actions are triggered. The order formally initiates the liquidation process, appointing a 'Liquidator' who is responsible for managing the sale of the corporate debtor's assets. The order also typically specifies the date from which the liquidation commences, and all previous resolutions, agreements, and approvals related to the corporate debtor stand suspended.

The Role of the Liquidator

The Liquidator is the central figure post-liquidation order. Their duties include:

<ul><li>Taking custody and control of all assets, property, and actionable claims of the corporate debtor.</li><li>Selling the assets of the corporate debtor in a manner that maximizes value.</li><li>Distributing the proceeds from the sale of assets to creditors according to the priority laid down in the IBC.</li><li>Maintaining accounts and records of the liquidation process.</li><li>Reporting to the NCLT and the Insolvency and Bankruptcy Board of India (IBBI).</li></ul>

The 'waterfall mechanism' in liquidation dictates the order of payment to different classes of creditors, ensuring a fair distribution of available assets.

Consequences of the Liquidation Order

Upon the passing of the liquidation order, several critical consequences ensue:

<ul><li>The corporate debtor is deemed to be in liquidation.</li><li>The powers of the board of directors and the management of the corporate debtor cease.</li><li>The Liquidator takes over the management and control of the corporate debtor.</li><li>A moratorium on suits, proceedings, and enforcement of security interests against the corporate debtor is imposed, except as provided under the IBC.</li><li>Creditors are required to submit their claims to the Liquidator.</li></ul>

The process of liquidation involves several sequential steps, starting from the NCLT's order and culminating in the distribution of assets. The Liquidator plays a crucial role in managing this entire process, ensuring adherence to legal provisions and maximizing stakeholder value. The diagram illustrates the typical flow from the order to the final distribution.

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Dissolution of the Corporate Debtor

Once the Liquidator has realized all the assets and distributed the proceeds as per the waterfall mechanism, and if there are no further pending matters, the Liquidator applies to the NCLT for the dissolution of the corporate debtor. Upon satisfaction, the NCLT passes an order of dissolution, marking the legal end of the corporate entity.

Learning Resources

Insolvency and Bankruptcy Code, 2016 - Bare Act(documentation)

The official, consolidated text of the Insolvency and Bankruptcy Code, 2016, essential for understanding the legal framework and specific provisions related to liquidation.

IBBI Regulations and Circulars(documentation)

Access to regulations and circulars issued by the Insolvency and Bankruptcy Board of India (IBBI), providing detailed procedural guidance for liquidation.

Liquidation Process under IBC - A Comprehensive Guide(blog)

A detailed blog post explaining the nuances of the liquidation process, including the NCLT's role and the liquidator's responsibilities.

Understanding the Waterfall Mechanism in IBC Liquidation(blog)

An article that breaks down the 'waterfall mechanism' for asset distribution during liquidation, a crucial aspect of the NCLT's order.

NCLT Practice Manual(documentation)

A practice manual for the National Company Law Tribunal, offering insights into procedural aspects and judicial pronouncements relevant to liquidation orders.

Key Provisions of the IBC: Liquidation(video)

A video explaining the essential provisions of the IBC concerning the liquidation process, including the triggers for an NCLT order.

The Role of the Liquidator in IBC(video)

This video focuses on the critical role and responsibilities of the Liquidator appointed by the NCLT after a liquidation order is passed.

Insolvency and Bankruptcy Code, 2016 - Wikipedia(wikipedia)

A general overview of the IBC, providing context and background information on its objectives and key stages, including liquidation.

Supreme Court Judgments on IBC(paper)

Access to Supreme Court judgments related to the IBC, which often clarify and interpret provisions concerning liquidation orders and their implications.

Guide to Insolvency and Bankruptcy Law in India(blog)

A comprehensive guide to insolvency and bankruptcy law in India, offering insights into the practical application of the IBC, including liquidation procedures.