Insolvency and Bankruptcy Board of India Issues Circular Dated September 28, 2023
- Anhad Law
- Aug 20
- 3 min read
The Insolvency and Bankruptcy Board of India (“IBBI”) has issued Circular No. IBBI/LIQ/61/2023 dated September 28, 2023 (“Circular”) to put forth necessary clarification related to computation of professional fee to be charged by a liquidator in terms of Clause(b) of sub-section (2) of Regulation 4 of IBBI (Liquidation Process) Regulation, 2016.
The Circular also offers clarifications on certain other aspects related to the process of liquidation, in terms of aforesaid regulations, a summary whereof is as follows:
a. Amount Realised: As per the IBBI, "Amount Realised" implies funds acquired from assets that are not readily convertible into cash, such as clear balance in bank accounts, term deposits, mutual funds, and quoted shares. As such, for assets that are already in liquid form, or in a form which is easily distributable (such as cash), there is no "realisation" process involved. Consequently, liquidators should not be eligible to claim any part of their fee computed based on realization of such liquid assets, and it is clarified that liquidators should keep the computation of their fee confined to realization and distribution of ‘non-liquid’ assets.
b. Other Liquidation Costs: As per the IBBI, all costs related to liquidation, with the exception of the liquidator's fee, should be categorized as "Other Liquidation Costs." The confusion regarding the payment priority of these elements vis-à-vis stakeholders arose due to the incorrect exclusion of specific components by certain liquidators, following an amendment introduced in the year 2019. IBBI has further clarified that these components, irrespective of when the liquidation process commenced, have consistently been part of the expenses associated with the liquidation process.
c. Amount Distributed to Shareholders: IBBI has also offered clarity on the meaning of "Amount Distributed to Stakeholders”. In this regard, IBBI has explicitly clarified that such amounts need to be computed after subtracting the costs related to the Corporate Insolvency Resolution Process (CIRP) and liquidation. Further, such costs, which encompass expenditures for safeguarding and maintaining assets, are not to be viewed as distributions to stakeholders, but as ‘essential deductions’ for computation of Amount Distributed to Stakeholders.
d. Amount of Realisation / Distribution: The Circular also provides clarification that the total value of Amount Distributed of Realisation/Distribution should be segmented into different tiers (as outlined in column 1 of the table). Following this division, the liquidator is expected to compute the fees for amounts realized or distributed during specific time intervals – the initial six (6) months, the subsequent six (6) months, or thereafter – using the respective percentages specified in columns 2, 3, and 4. This clarification is intended to promote uniform and precise fee calculations.
e. Period of Fee Calculation: It had been under notice of IBBI that liquidators in certain cases had been omitting certain timeframes from calculations of their fee, typically resulting due to court orders and/or actions by secured creditors. In this respect, IBBI has emphasized that exclusions in fee calculations should only be made if they are expressly approved by the National Company Law Tribunal, National Company Law Appellate Tribunal, or other competent courts. It has been further clarified that such exclusions should be limited to assets that could not be realised during the excluded period, backed with official judicial authorization.
It appears that this Circular has been issued by IBBI with the aim to promote consistency and precision in fee calculations. This clarification serves to enhance the comprehension of how fees are computed, benefiting liquidators, insolvency professionals and stakeholders. It is imperative for all parties engaged in the liquidation process to adhere to these clarifications, ensuring transparency and compliance with regulatory norms.
[1] The relevant circular can be accessed at: