Corporate Liquidation in India: Breaking Down the IBBI Amendments

Introduction to Corporate Liquidation in India

What is Corporate Liquidation in Corporate Accounting?

Corporate liquidation in accounting refers to the formal process of winding up a company’s affairs. This process involves converting the company’s assets into cash to settle outstanding liabilities and, ultimately, closing the company. In the context of corporate accounting, liquidation requires finalizing accounts to reflect the sale of assets, repayment of creditors, and distribution of any residual funds.

In India, corporate liquidation is governed under the Insolvency and Bankruptcy Code, 2016 (IBC) and the relevant provisions of the Companies Act, 2013, ensuring that the process is conducted in an orderly and legally compliant manner.

Importance of Liquidation vs. Dissolution in the Indian Context

Liquidation and dissolution are distinct yet sequential steps. Liquidation is the process by which a company’s assets are sold, and liabilities are settled. Dissolution is the final step where the company is removed from the register of companies. Under the IBC, the liquidation process is initiated through a court or tribunal order (typically by the National Company Law Tribunal (NCLT) when a resolution plan fails or when the company is unable to pay its debts.

The completion of liquidation, evidenced by the submission of a final report by the liquidator and the distribution of proceeds according to the statutory priority, leads to the issuance of a dissolution order. This clear differentiation is essential for legal certainty and for protecting the rights of creditors and stakeholders.

Legal Framework and Key Legislation

Overview of the Insolvency and Bankruptcy Code (IBC) and Its Role

The Insolvency and Bankruptcy Code, 2016, is the primary legislation governing insolvency resolution and liquidation in India. It provides a comprehensive framework for dealing with distressed assets and outlines the procedures for insolvency resolution and liquidation of companies.

Key sections of the IBC, such as Section 33, deal with the commencement of the liquidation process when a resolution plan is not approved by creditors or when other prescribed triggers are met. The IBC has been instrumental in streamlining the process, reducing the time taken for resolution, and ensuring an orderly realization of assets. Recent amendments have focused on improving efficiency and transparency, including changes in timelines for asset sales and mandatory electronic filing of forms with the Insolvency and Bankruptcy Board of India (IBBI).

The Role of the Insolvency and Bankruptcy Board of India (IBBI)

The IBBI plays a critical regulatory role in the corporate liquidation process. As the regulatory authority for insolvency professionals, the IBBI formulates guidelines, regulates the conduct of liquidators, and monitors compliance with procedural requirements. The IBBI has introduced several amendments to the liquidation process, such as mandating the use of electronic forms and imposing stricter timelines for filing reports.

These changes aim to ensure higher transparency and accountability during liquidation proceedings. The Board’s regulations, including the IBBI (Liquidation Process) Regulations, provide detailed instructions on how liquidators should manage the sale of assets, distribution of proceeds, and submission of periodic and final reports to the NCLT.

Adjudicating Authority for Corporate Insolvency and Liquidation (NCLT and NCLAT)

The National Company Law Tribunal (NCLT) is the primary adjudicating authority in matters of corporate insolvency and liquidation. The NCLT is responsible for initiating the liquidation process by passing a corporate liquidation order when the conditions prescribed under the IBC are met. It oversees the appointment of a liquidator and monitors the entire liquidation process to ensure compliance with legal requirements.

Decisions rendered by the NCLT in liquidation matters can be appealed to the National Company Law Appellate Tribunal (NCLAT), which further provides an appellate review mechanism. This multi-tiered adjudication system ensures that disputes and challenges during the liquidation process are resolved efficiently and in accordance with the law. Recent judicial interpretations have further clarified the roles and responsibilities of the adjudicating authorities, reinforcing the accountability of all parties involved in corporate liquidation.

Detailed Process of Corporate Liquidation in India

Initiation of Liquidation: Order and Its Implications

Under the IBC,2016 a corporate liquidation process begins with an order for liquidation passed by the Adjudicating Authority (NCLT). This can occur in several scenarios:

• No Resolution Plan or Plan Rejected: If the Corporate Insolvency Resolution Process (CIRP) ends without an approved resolution plan (e.g. no plan received within the CIRP timeframe, or the plan is rejected for non-compliance), the NCLT “shall pass an order requiring the corporate debtor to be liquidated”
• CoC Decision: Even before the CIRP period lapses, the Committee of Creditors (CoC) may resolve to liquidate the company and intimate the NCLT. In such case, the NCLT issues a liquidation order per Section 33(2) of IBC.
• Plan Contravention: If a resolution plan was approved but the debtor contravenes it, an affected party can apply for liquidation. The NCLT, upon determining a breach, will liquidate the company.

Effects of Liquidation Order: The liquidation order has immediate legal implications. It is deemed a “notice of discharge to the officers, employees and workmen of the corporate debtor”. In other words, the existing management’s powers cease, and employees’ contracts are terminated by law.

Additionally, as per Section 33(5) IBC, once liquidation is ordered, no new suits or legal proceedings may be initiated by or against the corporate debtor, except by the liquidator with NCLT’s approval. The Adjudicating Authority will also send the liquidation order to the Registrar of Companies and other regulators to update the company’s status.

Upon liquidation commencement (often called Liquidation Commencement Date), the resolution professional who was managing the CIRP usually transitions to become the liquidator, subject to his written consent and NCLT’s confirmation. The liquidator now takes charge of the corporate debtor for the purpose of winding up its affairs in accordance with Chapter III of the IBC.

Step-by-Step Liquidation Process

Public Announcement and Claims Collection

Once appointed, the liquidator must make a public announcement within 5 days of the liquidation commencement, calling upon all stakeholders to submit their claims. This announcement provides key details: the name of the corporate debtor, date of liquidation commencement, the liquidator’s contact, and the last date for submission of claims. Regulations stipulate that creditors should submit their claims (or update claims already submitted during CIRP) within 30 days from the liquidation commencement date.

All claims must be verified by the liquidator against the company’s records and other evidence within 30 days after the last date for receipt of claims. Late claims can be admitted at the liquidator’s discretion, but generally a delay can risk non-admittance.

After verification, the liquidator prepares a List of Stakeholders – essentially a list of admitted claims, categorized by class and amount. This list must be filed with the NCLT and shared with creditors to maintain transparency. Notably, recent amendments require this to be done promptly – for instance, within 45 days from the last date of receipt of claims as per the model timeline – to avoid undue delay.

Asset Custody, Valuation, and Sale

Once the liquidation proceedings commence, the liquidator takes custody and control of all assets and records of the company. Section 35 of IBC lays down the liquidator’s powers and duties: for instance, “to take into his custody or control all the assets, property, effects and actionable claims of the corporate debtor” and “to evaluate the assets and property of the corporate debtor… and prepare a report”.

The liquidator must also protect and preserve the assets during liquidation, which may include maintaining insurance, security, or minimal operations if needed for value preservation.

Valuation: The liquidator typically appoints registered valuers to determine the realizable value of the assets (often termed liquidation value). As per Regulation 35, this process must be conducted in a time-bound manner (usually within 75 days of commencement in practice).

Asset Sale: The core of liquidation is converting assets to cash. The liquidator has the power to sell movable and immovable properties of the company by public auction or private contract, in one lot or piecemeal, as he deems fit. However, there is a crucial restriction: “the liquidator shall not sell the assets of the corporate debtor to any person who is ineligible to be a resolution applicant” – essentially barring sales to persons prohibited by Section 29A of IBC.

Sales are generally done via e-auctions following the process in Schedule I of the Liquidation Regulations, which specifies how auction notices, reserve prices, and earnest money deposits (EMD) are to be handled.

In 2025, the liquidation regulations were amended to improve the auction process: the bidding window has been enlarged from at least 14 days to about 30 days, giving buyers more time. The liquidator must also explicitly mention in the auction terms that if the highest bidder is later found ineligible under Section 29A, their EMD will be forfeited.

Throughout the asset realization stage, the liquidator also pursues recoveries inside and outside the company: e.g., calling in any remaining unpaid capital contribution, selling actionable claims, and pursuing avoidance actions. If the company had transactions that were fraudulent, preferential to certain creditors, undervalued, or extortionate, the liquidator is duty-bound to investigate and file applications before NCLT to reverse such transactions (Sections 43–51 of IBC).

Distribution of Proceeds: The IBC Waterfall

After liquidating the assets and collecting all recoveries, the liquidator will distribute the proceeds to stakeholders in the order of priority set out in Section 53 of IBC (often called the waterfall mechanism). This statutory order ensures an equitable and structured payout:

1. Insolvency Resolution Process Cost and Liquidation Cost – paid in full first: These include the fees of the resolution professional and liquidator, costs of running the liquidation. They have the highest priority and must be paid before anyone else. Only after these costs are recovered does any creditor see a payment.
2. Secured creditors and Workmen’s dues (for last 24 months) – pari passu: These rank equally. Secured creditors who relinquish their security interest to the liquidation estate join at this level for the amount of their debts. Alongside them, workmen’s unpaid dues for the preceding two years are paid. If the available funds are insufficient to pay both in full, they share proportionately.
3. Wages and unpaid dues to other employees (for last 12 months): This class, which covers rank-and-file employees’ dues, comes next.
4. Unsecured financial creditors: All remaining unsecured creditors (typically financial creditors without collateral, or any operational creditors that did not fall into employee/workmen category) come next. In practice, many trade suppliers, utilities, and even government tax claims fall in the levels below, which means they often recover little unless the asset realization was substantial.
5. Subordinated claims: Below unsecured creditors, any remaining debts and dues are paid. This includes two sub-categories that rank equally: (i) Crown debts (dues to Central or State Government for the past two years) and (ii) unpaid secured creditor debts (if a secured creditor’s enforcement left a shortfall, that deficiency is paid here).
6. Residual debts: After satisfying all the above, if any money remains, it goes to any lower priority debts or remaining claims (this could include penalties, damages, etc., not covered above).
7. Shareholders: Finally, equity holders – preference shareholders first, then equity shareholders – get any leftover funds. In most insolvencies, this is zero, as shareholders’ claims are last in line by design.

This waterfall is strictly mandatory – IBC’s non-obstante clause ensures Section 53 overrides other laws or contractual arrangements. Creditors cannot contract out of this priority. The liquidator must deposit any unclaimed dividends or undistributed surpluses into a designated Corporate Liquidation Account with the government.

Recent 2024 regulatory changes have streamlined withdrawals from this account: stakeholders who miss taking their distribution during the process can later apply in Form I to the IBBI for withdrawal of their entitled amount. If any amount is still left unclaimed even after dissolution, stakeholders (or their heirs) can approach the IBBI within a specified period to claim it, ensuring no rightful claimant is unjustly enriched or denied.

Filing of Corporate Liquidation Forms and E-Filing Requirements

In addition to running the process, a liquidator must comply with extensive reporting requirements. The liquidator must prepare various reports under Regulation 5 and 45 of the Liquidation Regulations: A Preliminary Report (outlining initial estimates, asset conditions, proposed approach), asset memorandum (valuations and inventory of assets), quarterly Progress Reports, Sale Reports (for each major asset sale or auction event), minutes of Stakeholders’ Consultation Committee (SCC) meetings, and finally a Final Report prior to dissolution.

These documents are filed with the NCLT and the IBBI as required and must be preserved for years even after dissolution.

Compliance is now strictly enforced: As per the latest amendment (effective Jan 28, 2025), “Insolvency Professionals are now required to submit the details related to liquidation processes in the electronic forms on IBBI’s portal as per stipulated timelines.

A late fee of ₹500 per form per month of delay is payable”. Failure to file or inaccurate filing can invite disciplinary action, including refusal by IBBI to grant new assignments to the errant IP. In short, timely e-filing is not optional – it’s a legal obligation with financial and professional penalties for non-compliance.

Aside from IBBI forms, the liquidator also files applications and forms with the NCLT. The Ministry of Corporate Affairs’ rules (Companies (Winding-Up) Rules, 2020, where applicable) and NCLT Rules may prescribe additional filings, but for IBC-driven liquidations, the IBC and IBBI forms are primary.

Concluding the Process: Final Report to Dissolution

Liquidation can conclude in two ways: dissolution of the company, or in rare cases, a successful compromise or arrangement that halts dissolution. In most cases, once all assets are realized and distributed, the liquidator prepares a Final Report (with audited accounts of liquidation) and submits it to the NCLT under Regulation 45, along with an application for dissolution of the corporate debtor.

If the NCLT is satisfied that the process is complete, it passes an order dissolving the company. As Section 54(1) IBC states: “Where the assets of the corporate debtor have been completely liquidated, the liquidator shall make an application to the Adjudicating Authority for the dissolution of such corporate debtor”. The NCLT’s dissolution order is then sent to the ROC, and the corporate debtor’s legal existence is brought to an end from the date of order.

It is important to note that the liquidator must account for every rupee. If any funds are left (unclaimed or contingency reserves), they should be deposited in the Corporate Liquidation Account before seeking dissolution. The Final Report and compliance certificate (often called Form H in practice) ensure the NCLT that the liquidator has completed all tasks – asset sale, distributions, depositing residual amounts, and no litigation or application is left pending.

A recent amendment in 2025 made it explicit that even when a scheme of compromise or arrangement (under Section 230 of the Companies Act, 2013) is sanctioned during liquidation (an alternative outcome), the liquidator must file the final report and Form H with the NCLT before that arrangement is concluded. This embeds accountability even if liquidation is shortcut by a scheme.

Early Dissolution: In some cases, a company may have no assets at all or so little that continuing the process is not worthwhile. Regulation 14 of the Liquidation Regulations allows a liquidator to apply for early dissolution if he realizes that the assets are insufficient to even cover the liquidation cost.

The liquidator must convene the SCC and discuss the proposal – if the SCC advises in favor of early dissolution, then the liquidator may proceed to apply, along with a report of consultation. This ensures creditors agree that prolonging the process serves no purpose. The NCLT in such cases can order dissolution relatively early, rather than waiting out statutory timelines.

Once dissolution is ordered, the liquidator’s role in respect of the company ends. The company’s name is struck off and it ceases to exist as a legal entity. The entire process, as per IBC’s intent, should typically be completed within one year from the liquidation commencement (Regulation 44 specifies a one-year target for liquidations).

Many cases, however, take longer due to asset complexity or litigation; nonetheless, the liquidator is expected to make all endeavors to conclude expeditiously and must file progress reports every quarter until dissolution to show efforts made.

The Role and Responsibilities of the Liquidator in Corporate Accounting

Who is the Liquidator in Corporate Accounting?

A liquidator is the licensed insolvency professional tasked with administering the liquidation of a corporate debtor. Upon the liquidation order, the earlier Resolution Professional usually becomes the liquidator, subject to furnishing a consent in the specified form and confirmation by the NCLT.

The liquidator is an officer of the court (NCLT) and acts as a fiduciary for all creditors and stakeholders, not as an agent of the debtor or any creditor. In essence, the liquidator “steps into the shoes” of the company’s management for the limited purpose of winding up affairs – taking over custody of assets, statutory records, and decision-making.

It is important to distinguish between an IBC liquidator and an Official Liquidator under the Companies Act, 2013. Under older winding-up laws (Companies Act), liquidations were overseen by Official Liquidators (OL) who are officers of the Central Government (attached to High Courts).

But for IBC cases, the liquidator is a private insolvency professional, registered with IBBI, regulated by the Code of Conduct and reporting to the NCLT. In some circumstances, if an IBC liquidation is handed over from an existing winding-up, the roles might converge, but generally under IBC the term “liquidator” refers to the insolvency professional appointed under Section 34 of IBC to conduct liquidation.

From a corporate accounting perspective, the liquidator’s role involves finalizing the books of accounts of the company, realizing the accounting value of assets into actual cash, and settling the liabilities in the order of priority.

The liquidator often works with accountants to prepare the Statement of Affairs (a snapshot of assets and liabilities at commencement) and the final Statement of Realization and Distribution. In effect, the liquidator is responsible for the last financial statements of the company, showing how every asset was disposed and every rupee distributed as the company is dissolved.

Duties, Powers, and Challenges of a Liquidator

Duties and Powers: Section 35 of the IBC read with the Liquidation Regulations enumerate the liquidator’s powers and duties. Key duties include:

• Collecting and Verifying Claims: The liquidator must invite, receive, and adjudicate upon claims of all creditors. He has the power to accept or reject claims, in whole or part, through a reasoned order subject to appeal by the creditor. This requires careful review of company records and supporting documents for each claim.
• Taking Custody of Assets: The liquidator “takes into his custody or control all the assets, property, effects and actionable claims of the corporate debtor”. This may involve sealing premises, taking inventory, retrieving records from ex-management, and even taking control of litigation claims or arbitration proceedings that the debtor has rights in.
• Valuing and Selling Assets: The liquidator must evaluate assets in the manner specified by IBBI and prepare an asset memorandum. Then, he proceeds to sell assets. He has wide discretion to decide how to sell – via auctions, private sales, in parcels or as a whole. The only caveat is not to sell to ineligible persons (per Section 35(1)(f) proviso).

The liquidator’s aim is to maximize the realization, so they may consult expert valuers, adjust strategies if auctions fail, or seek NCLT permission for novel methods. Recent regulations also empower liquidators to apply for relevant approvals (like extending an industrial license or getting an environmental clearance transferred) if that helps fetch a better price for an asset/business.

• Continuing Operations if Beneficial: If running the business for a short period could yield better value, the liquidator can “carry on the business of the corporate debtor for its beneficial liquidation as he considers necessary”. This is a significant power – effectively acting as the chief executive of the firm in liquidation. It is to be used judiciously, typically when the business is close to profitability or when selling as a going concern is likely. The liquidator must ensure any such operation does not incur losses that further hurt creditors.
• Legal Actions and Defending Suits: The liquidator represents the company in all ongoing cases. He can “institute or defend any suit, prosecution or other legal proceedings, civil or criminal, in the name of on behalf of the corporate debtor” with NCLT’s approval. For instance, if someone sues the company during liquidation, the liquidator stands in court for the company. Conversely, he can initiate lawsuits to recover money owed to the company or to avoid past fraudulent transactions.
• Avoidance Transactions Investigation: As part of duties, the liquidator investigates the past financial dealings of the company to spot any undervalued transactions, preferences, extortionate credit, or wrongful trading by directors. If identified, he files applications under Sections 43–50 and 66 of IBC to reverse these and hold beneficiaries/directors liable.
• Consultation with Stakeholders: While the liquidator has authority, he is now required to consult the Stakeholders’ Consultation Committee (comprising representatives of creditors) in certain matters. The liquidator may refer to the SCC for advice on significant decisions (sale strategy, legal action, etc.) and must record the minutes of such meetings. As per IBC, the liquidator is not bound by the SCC’s advice, but he should give due consideration. The idea is to bring transparency and creditor involvement without compromising the liquidator’s autonomy.
• Reporting and Compliance: The liquidator must maintain proper records of liquidation, and submit regular reports to NCLT/IBBI. This includes preliminary report (within 75 days of start), quarterly progress reports, and a final report. There is also a duty to preserve these records for years after dissolution (currently 8 years), given that questions can arise post-dissolution (e.g., inspections by IBBI or complaints by stakeholders).

Challenges: The liquidator’s role is challenging and multi-faceted. Some of the common challenges include:

• Asset Realization Dilemmas: Many times, the assets may be encumbered or under litigation. The liquidator must coordinate with secured creditors – if a secured creditor opts to enforce their security outside liquidation (Section 52), the liquidator’s asset pool shrinks and he must deal with any excess or shortfall from that enforcement. If secured creditors join liquidation, the liquidator may have to convince them on the strategy to sell the asset (since they are the primary beneficiaries of that asset’s value).

Finding buyers for distressed assets, handling failed auctions, and deciding when to lower reserve prices or when to proceed with a negotiated sale are all judgment calls that can be second-guessed by creditors or questioned in court. The liquidator must document his decisions to show they were taken in the interest of maximizing value.

• Stakeholder Pressures: Different creditors have different interests. Operational creditors might push for quick disposal to get whatever is available, whereas secured creditors might prefer waiting for a better price. Workmen may be concerned about preserving jobs (hence preferring a going-concern sale). The liquidator must manage these expectations while ultimately adhering to the law (he cannot prefer one creditor unfairly).

The newly formalized SCC meetings each quarter can sometimes become contentious if stakeholders disagree, but the liquidator must maintain control. If a conflict of interest arises or if the liquidator is seen as not acting impartially, stakeholders can apply to the NCLT for the liquidator’s removal or replacement (Section 34(4) IBC).

• Procedural and Compliance Burden: The paperwork and procedural compliance in liquidation are significant. Apart from running the business aspects, the liquidator has to ensure all filings (with NCLT, IBBI, ROC, etc.) are done on time. The introduction of e-Forms has added an initial compliance burden – many liquidators scrambled to compile past data for Form LIQ-1 to LIQ-4 for old cases.

Missing a deadline now incurs monetary penalty, so the liquidator often needs a dedicated team just for compliance. Any mistake in compliance can attract IBBI’s scrutiny.

• Legal Liability and Fees: A liquidator is compensated by way of fees (usually a percentage of realization/distribution as per Regulation 4). However, if the process is protracted or assets do not sell, the liquidator’s fees may be uncertain. Meanwhile, they face risks – e.g., if found not exercising due care, they could face negligence claims or IBBI disciplinary action. In one recent NCLAT case, a liquidator attempted to charge an additional “fee” to a scheme proponent (someone proposing a compromise under Companies Act) for evaluating the scheme.
• The NCLAT rebuked this, holding that a liquidator is not entitled to levy any such fee on a scheme proposer beyond his entitled fees. This illustrates that liquidators must operate within the fee framework and not seek unauthorized payments, as that could be viewed as a breach of duty. Another challenge is that if the process overshoots the one-year mark, the liquidator must justify the delay in quarterly reports; too much delay can even lead to NCLT directing a change of liquidator.
• Handling Litigations and Recoveries: The liquidator often inherits a tangle of lawsuits – recovery suits filed by the company, or against the company (now stayed by Section 33(5) except via liquidator). Deciding which ones to continue (based on cost-benefit) and which to abandon is not easy. Similarly, pursuing avoidance transactions may require upfront costs (forensic audits, legal fees) with no guarantee of recovery if the counter-party is insolvent or has hidden assets.
• The liquidator must make these decisions prudently, as stakeholders will question unnecessary expenses. The amended regulations now require liquidators to provide economic justifications to the SCC before initiating any legal action on behalf of the company – a measure intended to curb wasteful litigation.

Recent IBBI Amendments and Their Impact on Corporate Liquidation

The IBBI notified amendments to the IBBI (Liquidation Process) Regulations, 2016, and the IBBI (Voluntary Liquidation Process) Regulations, 2017, on January 29, 2025. These amendments, effective immediately, aim to enhance the efficiency, transparency, and accountability of corporate liquidation processes in India.

Corporate liquidation under the IBC, governed by Chapter III of Part II, addresses the winding up of corporate debtors when resolution fails, or voluntary liquidation is initiated under Section 59. The 2025 amendments refine these processes, responding to practical challenges and aligning with the IBC’s objective of maximizing asset value in a time-bound manner.

These changes impact stakeholders, including liquidators, creditors, and bidders, by introducing procedural enhancements and stricter compliance requirements. The amendments reflect the IBBI’s authority under Section 196(1)(t) of the IBC to frame regulations, ensuring the insolvency framework remains effective and responsive to economic needs.

Key Amendments Affecting Liquidation Procedures

The 2025 amendments introduce specific changes to liquidation procedures under the IBBI (Liquidation Process) Regulations, 2016, and the IBBI (Voluntary Liquidation Process) Regulations, 2017. These updates target auction mechanisms, reporting obligations, electronic submissions, and fund management, as detailed below.

Extended Auction Timelines and Bidder Eligibility

The auction process, regulated under Regulation 32 read with Schedule I of the IBBI (Liquidation Process) Regulations, 2016, has been amended to extend the timeline for prospective bidders. Previously, bidders had 14 days from the auction notice to submit bids. The 2025 amendments extend this period to approximately 30 days by streamlining the verification of bidder eligibility. This change aims to increase participation, potentially improving asset realization for creditors under Section 53 of the IBC, which governs the distribution of proceeds.

A critical addition requires the liquidator to specify in the auction notice that the Earnest Money Deposit (EMD) of a successful bidder will be forfeited if they are found ineligible post-auction. This strengthens the process by deterring unqualified participants.

Bidder eligibility is now explicitly tied to Section 29A of the IBC, which prohibits certain persons—such as undischarged insolvents, willful defaulters, or those convicted of specified offenses—from submitting resolution plans or participating in auctions. The amendments mandate that all prospective bidders submit a declaration of eligibility under Section 29A via the electronic auction platform, ensuring compliance before bidding begins.

Mandatory Final Report Filing and Compromise Arrangements

Under the amended Regulation 45 of the IBBI (Liquidation Process) Regulations, 2016, liquidators must file the final report, including Form H, with the Adjudicating Authority (National Company Law Tribunal, or NCLT) when a scheme of compromise or arrangement is approved under Section 230 of the Companies Act, 2013.

Section 230 allows the NCLT to sanction arrangements between a company and its creditors or members, offering an alternative to complete liquidation. This requirement applies when such a scheme is proposed during liquidation under Section 33 of the IBC and approved, marking the process’s conclusion.

This amendment enhances oversight by ensuring the NCLT is informed of the liquidation’s outcome in such cases. It aligns with Section 35(1)(n) of the IBC, which empowers the liquidator to report to the Adjudicating Authority, reinforcing accountability in the process.

Electronic Filing of Liquidation Forms

Insolvency Professionals are mandated to file all details related to liquidation and voluntary liquidation processes through electronic forms on the IBBI portal. This requirement, introduced under Regulation 37 of the IBBI (Liquidation Process) Regulations, 2016, and Regulation 34 of the IBBI (Voluntary Liquidation Process) Regulations, 2017, covers progress reports, asset sale reports, and other submissions. The shift to electronic filing aims to reduce administrative delays, enhance accuracy, and improve transparency.

Non-compliance with these filing obligations may attract penalties under Section 235A of the IBC, which imposes fines for contraventions of IBBI regulations where no specific penalty is provided. This change modernizes the process, aligning with the IBBI’s digital infrastructure initiatives.

Handling Unclaimed Funds and Corporate Liquidation Accounts

The management of unclaimed funds is governed by Regulation 46 of the IBBI (Liquidation Process) Regulations, 2016, and Regulation 39 of the IBBI (Voluntary Liquidation Process) Regulations, 2017. The amendments reaffirm that the IBBI will maintain the Corporate Liquidation Account and Corporate Voluntary Liquidation Account in separate accounts with scheduled banks. These accounts hold unclaimed dividends and undistributed proceeds, facilitating efficient claim processing under Section 54 of the IBC for liquidation and Section 59(7) for voluntary liquidation.

A new requirement mandates liquidators to disclose tax deductions in detail before depositing funds into these accounts, ensuring compliance with the Income Tax Act, 1961. Additionally, the amendments clarify that voluntary liquidation can conclude despite uncalled capital, provided safeguards protect creditors under Regulation 14 of the IBBI (Voluntary Liquidation Process) Regulations, 2017. This prevents delays while balancing creditor interests.

Conclusion

The 2025 IBBI amendments significantly enhance the corporate liquidation framework under the Insolvency and Bankruptcy Code (IBC) by tackling procedural inefficiencies and bolstering stakeholder protections, aligning seamlessly with the IBC’s core goals of timely resolution and value maximization.

These amendments introduce several critical improvements: extended auction timelines under Regulation 32, now approximately 30 days, foster wider bidder participation and potentially increase recoveries; mandatory Section 29A declarations coupled with Earnest Money Deposit (EMD) forfeiture provisions ensure only eligible bidders engage, strengthening auction integrity; the requirement to file Form H under Regulation 45 upon approval of a scheme enhances accountability to the National Company Law Tribunal (NCLT); electronic submissions mandated by Regulations 37 and 34 streamline reporting processes, minimizing delays and errors; and the management of unclaimed funds through detailed tax disclosures and separate accounts promotes transparency and efficiency.

For legal and financial practitioners, these changes demand proactive strategies: advising clients to confirm Section 29A eligibility and submit declarations to avoid EMD forfeiture, ensuring timely electronic filings on the IBBI portal and evade penalties, verifying accurate tax disclosures per the Income-tax Act, 1961, before depositing funds into liquidation accounts to safeguard client interests, and capitalizing on the extended 30-day auction period for comprehensive due diligence to optimize bid quality and outcomes. Collectively, these amendments compel practitioners to adapt quickly, ensuring compliance and refining client approaches.

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