A company that is in liquidation is not beyond restructuring. Section 230(1) expressly contemplates a scheme between the company and its creditors or members, and it provides that in the case of a company which is being wound up, the scheme may be proposed by the liquidator. The NCLAT has recognised that a scheme under Section 230 for a company in liquidation is in the same continuum as a resolution plan under Section 31 of the IBC, and the liquidator can propose such a scheme.
The CIRP Prohibition
The NCLT Kochi has held that a scheme of compromise or arrangement under Section 230 cannot be considered during the corporate insolvency resolution process in the absence of a liquidation order. The Tribunal’s reasoning is that Section 230(6), Regulation 39BA of the CIRP Regulations, and Regulation 2B of the Liquidation Process Regulations, read together, make it clear that the exploration of a Section 230 scheme is statutorily contemplated only in the context of liquidation. Permitting a Section 230 scheme during the CIRP would conflate two distinct statutory processes and defeat the structured scheme of the Code.
The Liquidation Route
Once a liquidation order is passed, the liquidator may propose a scheme under Section 230 for the revival of the company. The NCLAT has held that the scheme by the liquidator under Section 230 is in a similar continuum as a restructuring proposal by way of a resolution plan under Section 31 of the IBC, and the 90-day timeline for completing the scheme is directory, not mandatory.
The NCLAT has also held that the prior NOC from the stock exchanges under Regulation 37(1) of the LODR is not required for a scheme for the revival of a company undergoing liquidation under the IBC, because Section 230(1) does not consider the liquidator to be the same as the company, and the rigors of Regulation 37(1) do not apply.
The Coordination
The liquidator’s scheme must be coordinated with the liquidation process. The liquidator must obtain the NCLT’s directions, convene the meetings of the creditors and members where required, and ensure that the scheme is consistent with the liquidation estate. The scheme must also address the treatment of the creditors who have not been paid in the liquidation, and it must not prejudice the interests of the stakeholders who are bound by the liquidation process.
A scheme involving a company in liquidation is a specialised transaction. It requires an understanding of both the Companies Act and the IBC, and it requires the coordination of the liquidator, the creditors, and the NCLT.
Call to Action
Anuj Desai & Associates advises liquidators, creditors, and companies on schemes involving a company in liquidation—from the CIRP prohibition and the liquidation-stage availability to the liquidator’s proposal and the NCLT coordination. If you are considering a scheme for a company in liquidation, we can help you assess the route.
📧 office@anujdesaiassociates.com
📞 9619456656
🌐 https://anujdesaiassociates.com
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