Sections 33 to 54 of the Insolvency and Bankruptcy Code (IBC), 2016 deal with the liquidation process under the jurisdiction of the National Company Law Tribunal (NCLT). This phase begins when Corporate Insolvency Resolution Process (CIRP) fails or is not viable, and the corporate debtor (company) must be liquidated.

Here’s a detailed explanation:

Section 33 – Initiation of Liquidation

• If the Committee of Creditors (CoC) doesn’t approve a resolution plan or the plan is rejected by the NCLT, liquidation is ordered.

• Liquidation can also be initiated if:

  • CoC votes for liquidation at any time.

  • The corporate debtor violates the resolution plan.

NCLT orders:

• Liquidation of the corporate debtor.

• Appointment of a liquidator (usually the resolution professional).

• Moratorium under Sec 14 ceases, and Sec 33(5) bars legal proceedings.

Section 34 – Appointment of Liquidator

• NCLT appoints the Resolution Professional (RP) as the liquidator, unless replaced.

• The liquidator has wide powers to take control of assets, verify claims, sell assets, and distribute proceeds.

Section 35 – Powers and Duties of Liquidator

• Control and custody of assets.

• Evaluate and sell the assets.

• Investigate financial affairs.

• Settle claims of creditors.

• Institute or defend legal proceedings.

• Report frauds, if any, to NCLT.

Section 36 – Liquidation Estate

• Liquidator forms a liquidation estate, comprising all assets of the corporate debtor.

• Assets held in trust, third-party assets, etc., are excluded.

• Assets are used to pay creditors as per waterfall under Sec 53.

Section 37 – Access to Information

• Liquidator can access information systems such as credit information companies, depositories, and statutory registers.

Section 38 – Consolidation of Claims

• Liquidator receives and verifies claims from creditors within a prescribed time.

Section 39 – Verification of Claims

• Liquidator verifies claims and may ask for evidence.

Section 40 – Admission or Rejection of Claims

• Liquidator can accept or reject a claim, wholly or partly. Reasons must be recorded.

Section 41 – Determination of Valuation

• Liquidator determines value of claims using regulations/guidelines.

Section 42 – Appeal against Decision of Liquidator

• A creditor can appeal to NCLT if dissatisfied with the liquidator’s decision on claims.

Section 43 to 51 – Transactions to be Avoided

These sections help claw back fraudulent or unfair transactions:

• Section 43 – Preferential Transactions

  • Transactions that unfairly favor one creditor over others.

• Section 44 – Orders by Adjudicating Authority (NCLT)

• Section 45 – Undervalued Transactions

• Section 46 – Time Limits (look-back period of 2 years for related parties, 1 year otherwise)

• Section 47 – Application by Creditor or Liquidator

• Section 48 – Orders in case of Undervalued Transactions

• Section 49 – Transactions to Defraud Creditors

• Section 50 – Extortionate Credit Transactions

• Section 51 – Orders by Adjudicating Authority for such transactions

Section 52 – Secured Creditors in Liquidation

• Secured creditors can:

  • Enforce their security outside liquidation (with intimation to liquidator), or

  • Relinquish security interest and claim in liquidation estate.

Section 53 – Distribution of Assets (Waterfall Mechanism)

Assets are distributed in the following order:

1. Insolvency resolution and liquidation costs

2. Secured creditors & workmen dues (within 24 months)

3. Employee dues (12 months before liquidation)

4. Unsecured creditors

5. Government dues and remaining secured creditors

6. Remaining debts

7. Equity shareholders

Section 54 – Dissolution of Corporate Debtor

• Once liquidation is complete, the liquidator applies to NCLT for dissolution.

• NCLT passes the dissolution order and the company ceases to exist.