CAIRR Update September 28, 2023

29/09/2023

Summary of the IBBI Circular dated 28/09/2023.

This circular is integrated in our free-to-use website ca2013.com. 

IBBI issues a clarification w.r.t. Liquidators’ fee under Regulation 4 (2) (b) of IBBI (Liquidation Process) Regulations, 2016

Pursuant to the provisions of Regulation 4 of the said regulations, the fee payable to the liquidator shall be decided by the Committee of Creditors (CoC) or Stakeholders’ Consultation Committee (SCC), as the case may be, if not, the same entitles the liquidator to a fee as a percentage of the amount realized net of other liquidation costs, and of the amount distributed, for the balance period of liquidation.

Due to different interpretations being made, IBBI through this circular has issued the following clarifications-

1. Amount realized- The term ‘amount realized’ to include only the proceeds from the sale/realization from the liquidation of such assets which changes form and not which are already liquid such as cash and bank balance including term deposits, mutual funds, and quoted shares. Such liquid assets which are available on start of the process after exploring compromise and arrangement, if any, to be excluded from the calculation of the ‘amount realized’.

2. Other liquidation costs- These will include all the components of liquidation cost which are paid in priority as per Section 53 (1) (a) excluding the liquidator’s fee.

3. Amount distributed to stakeholders- This amount to be calculated after deducting CIRP and liquidation cost.

4. Amount of Realization /Distribution- shall mean cumulative value of amount realized/ distributed which is to be bifurcated in various slabs viz., On the first 1 crore, on the next 9 Crore and so on and thereafter the same is to be bifurcated into realization/ distribution in various periods of time and then corresponding fee rate from the table is to be taken.

5. Period for calculation of fee- Any such exclusion of a time period w.r.t. stay by Court on sale of a particular asset, delay in relinquishment by secured credits, etc. for purpose of fee calculation is to be allowed only when the same has been explicitly provided by the Hon’ble NCLT/ NCLAT or any other court of law and will be applicable only for the asset which could not have been realized during the excluded period.

IPs currently handling or have handled in the past any liquidation assignment are required to take note of the fact that the fee they charge is in accordance with the above-mentioned clarifications and inform the same to the Board electronically on the website of IBBI. No disciplinary proceedings will be initiated if any excess fee was charged and has now been returned on or before 31st October 2023.