IBC 2016 - Empowering The Stakeholders Consultation Committee (SCC)
The Stakeholders Consultation Committee (SCC) is a consultation committee that is formed by the liquidator within 60 days of the start of the liquidation process. The SCC is made up of all creditors of the corporate debtor and a representative from the shareholders of the corporate debtor. Now there is empowered stakeholders' consultative committee under liquidation process. Regulation 32A(1) provides that the liquidator shall constitute a consultation committee, comprising of all creditors of the corporate debtor, within sixty days from the liquidation commencement date, based on the list of stakeholders prepared under regulation 31. This consultation committee known as stakeholders' consultation committee (SCC), which has representation from secured financial creditors, unsecured financial Crediotrs. Now constitution of stakeholders relationship committee required under Regulation 31 of the Regulations. The SCC constituted shall advise the Liquidator on the matters as mentioned in Regulation 31A of the Regulations. The said Regulation provides for inclusion of 1 (one) representative from the shareholders of the Corporate Debtor as the stakeholder in the SCC.
The liquidator must consult the SCC before applying to the Adjudicating Authority for early dissolution. The SCC advises the liquidator on matters as mentioned in Regulation 31A of the Regulations. The Insolvency and Bankruptcy Board of India (IBBI) has proposed to increase the SCC's involvement in the liquidation process. The proposed amendment aims to ensure that all stakeholders are adequately informed, engaged, and aligned throughout the liquidation process. Some key stakeholders under the IBC include: Financial creditors, Operational creditors, Corporate debtors, Resolution applicants, Employees, Investors/shareholders.
IBBI now Strengthens Liquidation Process with Stakeholder Involvement. The Insolvency and Bankruptcy Board of India (IBBI) has recently updated its main liquidation regulations, the IBBI (Liquidation Process) Regulations, 2016, through amendments issued on February 12, 2024. These changes aim to improve the transparency and efficiency of the liquidation process by empowering the Stakeholders Consultative Committee (SCC).
Key Changes:
Increased Stakeholder Consultation:
Liquidators must seek SCC consent for compromises, early dissolutions, asset sales, and legal proceedings.
Monthly SCC meetings are mandated, with detailed reports and discussions on key aspects like marketing strategy, ongoing litigation, and asset valuation.
Stakeholders can now directly apply for claims from the Corporate Liquidation Account after dissolution.
Transparency and Accountability:
Registered valuers must explain their methodology to the SCC before finalizing reports.
Reasons for deviations from CIRP valuations exceeding 25% must be explained to the SCC.
Auction notices must disclose extended payment periods and reserve price adjustments.
New Form A captures details of stakeholder consultations for improved record-keeping.
Overall Impact:
The amendments that are anticipated to improve the credibility and fairness of the liquidation process. Liquidation is the process by which a company's assets are sold off to pay its debts when it is unable to meet its financial obligations. The mentioned amendments aim to bring about positive changes in this process through the following means:
1. Involving Stakeholders in Key Decisions: The amendments likely propose increased participation of stakeholders in crucial decisions related to the liquidation process. Stakeholders could include creditors, shareholders, employees, and other parties with an interest in the company. This involvement ensures that the interests of various stakeholders are taken into consideration, making the decision-making process more inclusive and representative.
2. Ensuring Transparency in Valuations: Valuation is a critical aspect of the liquidation process, determining the worth of the company's assets. Transparency in valuations implies that the methods used to assess the value of assets are clear, open, and easily understandable. This helps build trust among stakeholders, as they can be confident that the valuations are conducted fairly and without bias.
Recommended by LinkedIn
3. Transparency in Sale Procedures: The amendments likely emphasize the importance of transparent sale procedures. This means that the methods used to sell the company's assets are conducted openly and fairly, without hidden agendas. Transparent sale procedures help prevent any potential misconduct or favoritism during the asset-selling phase, contributing to a more equitable distribution of proceeds among creditors and other stakeholders.
In summary, the goal of these amendments is to create a more trustworthy and equitable liquidation process by involving stakeholders in decision-making, ensuring transparency in asset valuations, and promoting openness in sale procedures. This, in turn, is expected to enhance the overall credibility and fairness of the liquidation process.These amendments are expected to enhance the credibility and fairness of the liquidation process by involving stakeholders in key decisions and ensuring transparency in valuations and sale procedures.
#insolvencyandbankruptcycode
#ibc
#ibc2016
#ibcode
#insolvency
#bankruptcy
#indianeconomy
#indianbusiness
#lawreform
#legalupdates
#businessnews
#economy
#finance
#startupindia
#smallbusiness
#startups
#entrepreneurship
#implementation
#governance
#regulation
#Nclt #nclat #ibbi
