1/8/2024 0 Comments Define liquidationUnder what circumstances, liquidation takes place under IBC? It is pertinent to note that, the aforesaid conditions shall not apply to the proceedings notified by the Central Government. However, the liquidator may institute a legal proceeding on behalf of the corporate debtor only with the permission of the Adjudicating Authority. Moreover, after the process of liquidation of the corporate debtor has been initiated, a moratorium will be declared against the corporate debtor stating that the corporate debtor cannot sue or be sued before any court of law. However, the said persons shall not stand discharged if, during the liquidation process, the liquidator continues the business of the corporate debtor. ![]() Once the order of dissolution has been passed by the Adjudicating Authority, the officers, employees, and workmen of the corporate debtor will be discharged from their respective duties and responsibilities. The settlement of its debts is done by selling the assets of the corporate debtor and distributing the proceeds of the sale to its creditors, workmen, shareholders, partners, and in some cases to the Government. The process of liquidation is initiated when the corporate debtor becomes incapable of repaying its debts and carrying on its business in the ordinary course. Dissolution or winding up of the corporate debtor means that will cease to exist or close down completely. However, in the general sense, liquidation is a process wherein the corporate debtor is dissolved or wound up. The IBC does not define the term “liquidation”. The order of priority is also known as the “waterfall mechanism”. Distribution of the net proceeds of the assets of the corporate debtor as per the priority is the most important aspect of the liquidation process. Once the process of liquidation of the corporate debtor has been initiated, its assets will be sold and distributed amongst the creditors, employees, shareholders, partners, etc., as per the order of priority prescribed under the Code. In order to carry out the liquidation process, a liquidator is appointed by the Adjudicating Authority. IBC and the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 (hereinafter referred to as “Liquidation Regulations”) both deal with the process of liquidation of the corporate debtor. Therefore, the corporate debtor has to go throughto through the process of liquidation. T hough the main objective of the Code is to revive the corporate debtor and prevent it from going through the process of liquidation, there are various circumstances wherein the insolvency of the corporate debtor does not get resolved through the Corporate Insolvency Resolution Process (hereinafter referred to as “CIRP”). Under the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “IBC” / “Code”), the process of liquidation can be initiated if the corporate debtor becomes incapable of repaying the debts or amounts owed by it to other entities. ![]() In simple terms, liquidation means closing down the business of the corporate debtor. Liquidation of a corporate debtor refers to the end of its operations or existence. The priority of claims of financial creditors v. ![]()
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