IBBI issued a circular dated September 28, 2023, titled ‘Clarification w.r.t. Liquidators’ fee under Regulation 4(2)(b) of IBBI (Liquidation Process) Regulations, 2016’ (‘the Circular’). It clarifies the following:

Regulation 4 of the IBBI (Liquidation Process) Regulations, 2016 (Liquidation Regulations) provides for Liquidator’s fee. It provides that the fee payable to the liquidator be decided by the Committee of Creditors (CoC) or Stakeholders’ Consultation  Committee (SCC), as the case may be. If the liquidators’ fee is not fixed under sub-regulation (1)  and (1A), clause (b) of sub-regulation (2) of Regulation 4 provides that the liquidator shall be entitled 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 as provided under Circular of IBBI dated September 28, 2023.

Para 2.1- Amount Realised

The Circular dated September 28, 2023, clarified “Amount realized” means an amount realised from the sale of an asset where the asset changes form. Where the asset is already liquid such as cash and bank balance including term deposits, mutual funds, and quoted shares, there is no ‘realisation’, and funds are readily available for distribution. The amount realised, thus, implies the proceeds from the sale/realization of liquidating assets that are not liquid. Therefore, the liquidator is not entitled to a fee on realisation for these liquid assets and is entitled to a fee only on distribution.

It has been clarified in the Circular that “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.

Para 2.5- Period for calculation of fee

It has been observed that the liquidators are suo-moto excluding various time periods such as a stay by the court on the sale of a particular asset, or delay in relinquishment by a secured creditor, for the purpose of calculating the fee. However, since the liquidator works under the overall guidance of the Adjudicating Authority, any such exclusion should have the stamp of judicial authority and should be only for the asset for which such exclusion has been granted.

It has been clarified that the exclusion for the 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 operate only for the asset which could not have been realised during the excluded period.

Now vide an Order dated April 04, 2024 of the Hon’ble Bombay High Court in the matter of Amit Gupta vs. Insolvency and Bankruptcy Board of India & Union of India (Writ Petition (Lodging) No. 34701 of 2023), IBBI has issued his Circular dated April 18, 2024 confirming the validity of the remaining para of the Circular and  Para 2.1 (‘Amount Realised’) and Para 2.5 (‘Period for calculation of fee’) of Circular dated September 28, 2024 stands withdrawn.

IBBI also informed the IPs who have not submitted any compliance in relation to the circular dated 28th September 2023, that an opportunity is given by IBBI to IPs to comply with the remaining parts of the circular dated September 28, 2023, and inform the status of the same to the IBBI electronically on the website of IBBI on or before May 31, 2024.

The link to the aforesaid Circular is as follows:

https://ibbi.gov.in/uploads/legalframwork/d9278b0d6a1def375f5a9b9046c3cc85.pdf