Did you know that nearly 75% of companies facing insolvency fail to survive the resolution process and enter liquidation? If you’re a banker, finance professional, or business owner, understanding the Insolvency and Bankruptcy Code (IBC) 2016 is crucial.
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- Key reports submitted during liquidation
- How assets are valued and sold
- The rights of secured and unsecured creditors
- Common fraudulent transactions & how they are reversed
Who is this video for?
This video is a must-watch for banking professionals, legal experts, entrepreneurs, and students preparing for exams like CAIIB & JAIIB.
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Understanding the Liquidation Process Under IBC 2016
🔹 What is Liquidation? (00:00:06 – 00:01:18)
If a company fails to resolve its financial distress during the Corporate Insolvency Resolution Process (CIRP), it enters liquidation. An official liquidator (also called an Insolvency Resolution Professional) is appointed to oversee the process.
🔹 The Role of NCLT in Liquidation (00:01:50 – 00:02:50)
The National Company Law Tribunal (NCLT) supervises the entire liquidation process. A preliminary report must be submitted within 75 days of the liquidation order. This report includes details such as capital structure, debt-equity ratio, and the classification of creditors.
🔹 Asset Memorandum: Understanding Company Assets (00:02:50 – 00:04:01)
The Asset Memorandum is prepared within 75 days and includes:
- Inventory of all assets
- Standalone value & grouped asset sale potential
- Methods of sale: Auction, Slump Sale, or Private Sale
- Legal or regulatory challenges in asset liquidation
🔹 Progress Report: Keeping NCLT Updated (00:04:34 – 00:06:44)
The progress report is submitted quarterly to NCLT. It includes:
- Stakeholder settlements
- Assets sold and pending sales
- Unpaid debts & legal disputes
- Changes in financial estimates
🔹 Fraudulent & Avoidance Transactions (00:09:20 – 00:11:02)
Certain transactions done before insolvency are reversed under IBC, such as:
- Preferential transactions (Paying one creditor over others unfairly)
- Undervalued transactions (Selling assets below market value)
- Fraudulent transactions (Transferring assets to family members)
- Extortionate credit transactions (Unfair loan terms before filing bankruptcy)
Conclusion: Key Takeaways & Next Steps
Liquidation is a structured legal process ensuring fair asset distribution.
Secured creditors have the upper hand but must decide their approach wisely.
Avoidance transactions can be reversed to protect stakeholders.
The entire process must be completed within a year, with a 90-day extension in complex cases.
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