Answer By law4u team
When a corporate debtor enters liquidation due to failure of the resolution process or voluntary decision by creditors, the role of the liquidator becomes central. Appointed by the adjudicating authority (NCLT), the liquidator is tasked with overseeing the orderly winding up of the company. This includes collecting and selling the debtor’s assets, verifying claims, settling liabilities, and distributing proceeds as per the prescribed legal hierarchy under the Insolvency and Bankruptcy Code (IBC), 2016.
Key Responsibilities and Powers of a Liquidator
Formation of Liquidation Estate
The liquidator consolidates all assets owned or held by the corporate debtor to form the liquidation estate, which will be used to repay creditors.
Public Announcement of Liquidation
Within five days of appointment, the liquidator must make a public announcement inviting creditors to submit their claims within 30 days.
Verification of Claims
All financial and operational creditor claims are verified by the liquidator to ensure validity and accuracy before inclusion in the distribution list.
Valuation and Sale of Assets
The liquidator gets the debtor’s assets valued by registered valuers and then sells them via public auction or private sale to maximize recovery.
Distribution of Proceeds (Section 53)
The liquidator distributes sale proceeds in a specific order of priority:
- Insolvency costs
- Secured creditors and workmen dues
- Other employees
- Unsecured financial creditors
- Government dues and remaining debts
- Shareholders, if anything remains
Protection of Stakeholder Interests
The liquidator must act fairly and avoid preferential, undervalued, or fraudulent transactions. Any such past transactions can be reversed with NCLT approval.
Filing Reports with NCLT
The liquidator is required to submit progress reports, asset sale reports, and a final liquidation report to the adjudicating authority.
Dissolution of Corporate Debtor
Once assets are liquidated and claims are settled, the liquidator files an application with NCLT for the dissolution of the company.
Legal Provisions Under IBC
- Section 34 – Appointment and powers of the liquidator
- Section 35 – Detailed functions and duties
- Section 53 – Distribution waterfall mechanism
- Regulations 12–45 – IBBI (Liquidation Process) Regulations, 2016
Example
A company, XYZ Ltd., fails to get an approved resolution plan within the CIRP timeframe. NCLT orders liquidation and appoints a registered liquidator.
Steps and Outcome:
- The liquidator publishes a notice inviting claims and collects all creditor submissions.
- Assets such as machinery, inventory, and property are valued and sold via auction.
- Claims are verified and recorded in the final list of stakeholders.
- Proceeds from asset sales are distributed according to Section 53 priorities.
- After all obligations are settled, the liquidator files a final report.
- NCLT passes an order for dissolution of XYZ Ltd.
