New liquidation waterfall: A sea change for creditors

By Satish Anand Sharma and Aditya Dua, SNG & Partners
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Implementation of the Insolvency and Bankruptcy Code, 2016, has led to several challenges and questions to be settled by policy makers, the judiciary and the regulator. The code has brought a sea change in the liquidation regime and the order of distribution of the proceeds among stakeholders.

Satish Anand SharmaSenior associateSNG & Partners
Satish Anand Sharma
Senior associate
SNG & Partners

Section 53 of the code provides a waterfall mechanism for the order of distribution of proceeds from the sale of liquidation assets among the stakeholders in liquidation proceedings of a corporate person. By virtue of the notwithstanding provision of section 53, the waterfall mechanism under the code is to have overriding effect over any other central or state statutes that are in force.

Under section 53 of the code, the proceeds from sale of the liquidation assets shall be distributed in the following order of priority:

(a) The insolvency resolution process costs and the liquidation costs paid in full;

(b) The following debts which shall rank equally: (i) workmen’s dues for the period of 24 months preceding the liquidation commencement date; and (ii) debts owed to a secured creditor in the event such secured creditor has relinquished security in the manner set out in section 52;

(c) Wages and any unpaid dues owed to employees other than workmen for the period of 12 months preceding the liquidation commencement date;

(d) Financial debts owed to unsecured creditors;

(e) The following dues shall rank equally between and among the following: (i) government dues; and (ii) debts owed to a secured creditor for any amount unpaid following the enforcement of security interest;

(f) Any remaining debts and dues;

(g) Preference shareholders, if any; and

(h) Equity shareholders or partners, as the case may be.

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SNG & Partners has offices in Delhi, Mumbai, Singapore and Doha. Satish Anand Sharma and Aditya Dua are senior associates.

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One Bazaar Lane, Bengali Market
New Delhi – 110001
India

Contact details:
Tel: +91 11 4358 2000
Fax: +91 11 4358 2033
Email: info@sngpartners.in
Website: www.sngpartners.in

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