The Insolvency and Bankruptcy Board of India (IBBI) on September 28, 2023, issued a circular regarding Clarification w.r.t. Liquidators’ fee under clause (b) of sub-regulation (2) of Regulation 4 of IBBI (Liquidation Process) Regulations, 2016.
The following has been stated: -
•Regulation 4(2)(b) which talks about the Amount realized provides that the fee shall be “as a percentage of the amount realized net of other liquidation costs, and of the amount distributed, for the balance period of liquidation.
Clarification: “Amount realized” shall mean the amount realized from assets other than liquid assets such as cash and bank balance including term deposit, mutual fund, and quoted share available at the start of the process after exploring compromise and arrangement, if any.
•Other liquidation costs: The term “Amount of Realisation (exclusive of liquidation costs)” given in the table in Regulation 4(2)(b) mandates that all liquidation costs are to be deducted from the realization amount. However, as per regulation 4(2)(b), “other liquidation cost” is to be deducted from realization. There is a gap in understanding in the market about what components of the liquidation cost are to be excluded from the liquidation cost to derive “other liquidation cost”.
Clarification: The “other liquidation cost” in regulation 4(2)(b) shall mean liquidation cost paid in priority under section 53(1)(a), after excluding the liquidator’s fee.
The detailed circular is given in the document attached below.
[Circular No. IBBI/LIQ/61/2023]
