Challenges to Company liquidation under IBC
Challenges to Company liquidation under IBC

The goal of Insolvency and Bankruptcy Code is primarily to put the matter of insolvency resolution on a fast track. However, most of the recent developments have shown evidence that in most instances, where the debts far outweigh the asset valuations, liquidation is the only option. While, insolvency professionals are always up in arms for the this option, there are many challenges of liquidation. This in turn makes the entire prospect of liquidation a long and tedious one. Through this article, we are going to discuss the challenges associated with this matter through some recent cases.

Liquidation and its challenges

  • Request to relinquish control: In order to pave the way of asset liquidation, the asset control is to be taken away from the committee of creditors. For this, a request has to be made to the committee for relinquishing the controls of the assets. Informally speaking, the CoC can be a handful to deal with. Therefore, taking authorization from all the members of the CoC can be a daunting task.

             Case:  This challenge appeared during the liquidation of Conros Steel Pvt Limited.

  • Application to release the assets: In order to liquidate the assets, its control has to be released. Other than asking the CoC to relinquish the control, the NCLT has to be brought into the matter as well. This is done by the Insolvency Professionals filing an application to the National Company Law tribunal for the release of assets.

             Case: This challenge has appeared in every case of insolvency.

  • Making sense of the new regulations:  The new regulations have ironically been made stringent and flexible at the same time. This poses a challenge for even the veteran accountants who have been made the insolvency professionals to understand these regulations. The intellectual nature of this challenge have more consequence on this matter than one might expect.
  • Asset attachment:  Insolvency resolution or liquidation is not a matter that can make the use of anything less than accurate information about the assets. The attachment of these assets takes a long time as the information has to be taken from multiple resources like enforcement directorate, service tax, income tax agency and other statutory and probe agencies.
  • Lack of viable resolution plan: While liquidation of assets tends to be the most expected result of the insolvency resolution process, it is definitely not a desired one. However, due to the overtly-complicated nature of the documents combined with the difficulty of understanding, makes the resolution process difficult. This makes the liquidation plan a course of action taken out of compulsion, not out of strategy.

           Case: When Punjab national bank filed a plea against the defaulter, the NCLT submitted a liquidation application. In this case, the CoC had put out an invitation of a resolution               plan (twice).

  • Liquidation can be lengthy: In absence of any insolvency resolution plan within 180 to 270 day period prompts the result to be liquidation. However, liquidation itself can be lengthy process, with a period of 2 years allowed to it. That being said, in most cases, this period can extend and if that happens, the Insolvency professionals has to take the permission from the NCLT.
  • Lack of proper land ownership pattern: Land ownership patterns can be immensely complicated. For a liquidator, this can be considered as a nightmare. Even a little un-patched land can make the asset appear to be less than lucrative to any prospective buyer.
  • An additional compliance:  the liquidation proceedings can only be initiated by the prior approval of the NCLT or to be properly put, the adjudicating authority’s approval beforehand is needed to initiate liquidation. This adds an extra layer of compliance that can make liquidation process more drawn out than it deserves to be.


Liquidation pre- IBC used to be a complicated affair, and is complicated still. However, at this stage, liquidation under IBC is a nascent affair and therefore, we can remain hopeful that with time, we are going to see some real headway when it comes to ease in liquidation.

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Insolvency, Insolvency, Bankruptcy, Bankruptcy, Finances, Finances, liquidation, liquidation, Corporate Insolvency, Corporate Insolvency, Insolvency and Bankruptcy, Insolvency and Bankruptcy, Company liquidation, Company liquidation,

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