21 September 2022
IBBI amends the voluntary liquidation process regulations

The Insolvency and Bankruptcy Board of India (IBBI) has notified IBBI (Voluntary Liquidation Process) (Second Amendment) Regulations, 2022 (Amendment Regulations), on 16 September 2022.

These Amendment Regulations prescribe significant changes in the manner of preservation of records of the company in voluntary liquidation by the liquidator. The highlights of the Amendment Regulations are mentioned below:
 
Provision Comments
Changes to the Declaration of Solvency (DoS) A new sub-regulation (5) has been added in regulation 3 of the principle regulations. According to that, the DoS executed in respect of the corporate person should provide a declaration stating that the corporate person has made provisions for the preservation of its records after its dissolution.
Preservation of records by liquidator In supersession of existing regulation 41, a new regulation is added. The said new regulation states that:
  • The liquidator shall preserve copies of all such records which are required to give a complete account of the voluntary liquidation process;
  • The Amendment Regulations prescribed an enhanced list of records pertaining to the voluntary liquidation of a corporate person that is required to be preserved by the liquidator;
  • Requires the liquidator to preserve electronic copies of records for eight years and physical copies for three years;
  • In case of replacement of the liquidator, the out-going liquidator needs to handover the records to the new liquidator;
  • The liquidator require to preserve records at a secure place and obliged to produce as may be required under the provision of the Insolvency Code and principle regulations;
  • The liquidator needs to provide the details and manner of preservation of the records in the dissolution petition filed with the Adjudicating Authority, i.e., the National Company Law Tribunal (NCLT);
  • Clarifies that the period of records should be from the appointment of the liquidator until the dissolution of a corporate person.

Our Comments
The Amendment Regulations made significant changes in the manner of preservation of records. Earlier the liquidator was required to preserve the records with himself or with the information utility. However, Amendment Regulations prescribe an onerous obligation to preserve the same with himself at a secure place in electronic as well as physical form. It further casts an obligation on the liquidator by requiring him to produce the same as may be required under the law. This is likely to increase the cost of liquidation as the liquidator will have to comply with this requirement post-dissolution of a corporate person and therefore has to incur cost relating to secure infrastructure. Although the DoS given by the directors/partners needs to state that the provision is made for the preservation of records, it does not cast any obligation on them in that relation after dissolution. After dissolution, the erstwhile directors/partners become functus officio; hence the purpose of changes to DoS just seems to assert that before the dissolution, such provision is made. While the preservation prescribed is in respect of records pertaining to the liquidation, but the law is silent on other statutory records pertaining to the corporate person and the person responsible for preserving the same. Therefore, it raises certain questions such as how the provision will be made in this relation, including the cost to be incurred for maintenance of such provision, who will be the responsible person to ensure the safe keeping of those corporate records, the timeline until which records should be preserved and disposal of the records.
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