Winding Up of a Company

Consolidation of Claims and Verification under IBC, 2016

Consolidation of Claims is mentioned under Section 38 and Verification of Claims is mentioned under Section 39 under Insolvency and Bankruptcy Code 2016.

SECTION-38 Consolidation of claims

1. The liquidator has to receive or collect the claims of creditors within a period of 30 days from the date of the commencement of the liquidation process.
2. A financial creditor has to submit a claim to a liquidator by providing a record of such claim with an information utility:
3. Provided that if the information related to the claim is not recorded in the information utility, the financial creditor can submit the claim in the same manner provided for the submission of claims for the operational creditor as prescribed under sub-section (3).
4. An operational creditor can submit a claim to a liquidator in such form and in such manner along with the supporting documents as required to prove the claim as may be mentioned by the Board.
5. A creditor who is partly an operational creditor and partly a financial creditor shall submit claims to the liquidator to the extent of his financial debt in the manner as provided in sub-section (2) and to the extent of his operational debt under sub-section (3).
6. A creditor can withdraw or varies his claim under this section within 14 days of its submission.

I. Consolidation of claims

Submission of Claims [Sec. 38(1) & LP Reg.-16]

• It is a responsibility of a liquidator to receive or collect the claims of all the creditors within a period of 30 days from the date of commencement of the liquidation process.
• A person, who claims that he is a stakeholder, will submit its claim, or update its claim submitted during the CIRP, with interest including, if any, on or before the last date as specified in the public announcement.
• A person has to prove its claim regarding the debt or dues to him, including interest, if any, as on the liquidation commencement date.

Claims by financial creditors [Sec. 38(2) & LP Reg.-18]

A financial creditor has to submit his claim to the liquidator by providing a record of such claim with the full information utility. If the required information related to such claim is not recorded in the information utility, the financial creditor has an option to submit the claim in the required manner as provided for submission of claims for the operational creditor.

A person who claims to be a financial creditor of the corporate debtor will be required to submit proof of claim to the liquidator in electronic means in Form D of Schedule II. The existence of a debt due to the financial creditor has to be proved on the basis of:

• the records which are available in an information utility, if any; or
• any other relevant documents which adequately establish the debt, including any or all of the following-
  • the financial contract that is supported by financial statements as evidence of the debt
  • a record evidencing which amounts committed by the financial creditor to the corporate debtor under a facility has been drawn by the corporate debtor
  • any financial statements showing that the debt has not been repaid and
  • An order of a court or tribunal that has adjudicated upon the non-payment of a debt, if any.

Claims by operational creditors [Sec. 38(3) & LP Reg.-17]

A person who claims to be an operational creditor of the corporate debtor, other than a workman or employee, will submit proof of claim to the liquidator in person, by means of post or by an electronic means in Form C of Schedule II. The existence of a debt due to an operational creditor under this Regulation has to be proved on the basis of-

• the records which are available with an information utility, if any; or
• any other relevant documents which adequately establish the debt, including any or all of the following –
  • a contract regarding the supply of goods and services with the corporate debtor;
  • an invoice in which demanding of payment for the goods and services supplied to the corporate debtor
  • an order of a court or tribunal that has been adjudicated upon the non-payment of a debt, if any, or
  • Financial accounts statements

Claims by workmen and employees [LP Reg.-19]

A person who claims to be a workman or an employee of the corporate debtor will submit proof of claim to the liquidator in person, by post or by electronic means in Form E of Schedule II. In case there are dues to numerous workmen or employees of the corporate debtor, then an authorized representative has to submit one proof of claim for all such dues on their behalf in Form F of Schedule II. The existence of all dues to workmen or employees can be proved by them, individually or collectively, on the following basis of-

• the records which are available in an information utility, if any; or
• any other relevant documents which adequately establish the dues, including any or all of the following –
  • a proof such employment as mentioned in the contract of employment for the period for which such workman or employee is claiming dues
  • . Evidence of any notice demanding payment of the unpaid amount and any of the documentary or other proof that payment has not been made or
  • An order pronounced by a court or tribunal that has been adjudicated upon the non-payment of dues if any.

The liquidator can admit the claims of a workman or an employee on the basis of the books of account of the corporate debtor if that particular workman or employee has not made a claim.

Claims by other stakeholders [LP Reg.-20]

A person who claims to be the stakeholder other than those mentioned under Regulations 17(1), 18(1), or 19(1), has to submit proof of claim to the liquidator in person, by means of post or by an electronic means in a Form G of Schedule II. The existence of that claim of the stakeholder can be proved on the following basis of –

• the records which are available in an information utility, if any, or
•  other relevant documents which adequately establish the claim, including any or all of the following–
  • any documentary evidence of notice that demands payment of the unpaid amount or any bank statements of the claimant showing that the claim has not been paid and an affidavit required that the documentary evidence and bank statements are true, valid and genuine
  • documentary or electronic evidence of his shareholding and
  • Any order pronounced by a court, tribunal or other authority that has adjudicated upon the non-payment of a claim if any.

If a partly financial creditor and a partly operational creditor [Sec. 38(4)]

A creditor who is a partly financial creditor and a partly operational creditor has to submit claims to the liquidator to the extent of his financial debt in the manner as specified in Claims by the financial creditors and to the extent of his operational debt as mentioned in Claims by the operational creditors.

Withdraw the Claim [Sec. 38(5)]

A creditor can also withdraw or may vary his claim under this section within 14 days of its submission.

Production of a bill of exchange and the promissory notes [Reg.-22]

If a person seeks to prove the debt in respect to bills of exchange, and promissory note or any other negotiable instrument or any of the security of alike nature for which the corporate debtor will be liable, that bill of exchange, note, instrument or security, as the case may be, must be produced before the liquidator before the claim is admitted.

SECTION-39 Verification of claims

1. The liquidator has to verify the claims submitted under section 38 within such time as prescribed by the Board.
2. The liquidator is required that any creditor or the corporate debtor or any other person has to produce any other document or evidence which he thinks mandatory for the purpose of verifying the whole or any part of the claim.

Verification of claims [Sec. 39 & LP Reg.-30]

The liquidator also verifies the claims submitted under section 38. As per Regulation 30, the liquidator has to verify the claims submitted within 30 days from the last date for receipt of claims. It can either admit or reject the claim, in whole or in part, as the case may be.

Further documents [Sec. 39(2)]

Any creditor or a corporate debtor or any other person is required to produce any other document or evidence given to the liquidator which he thinks necessary for the purpose of verifying the whole or any part of the claim.

Substantiation of claims [LP Reg.-23]

The liquidator can call for any other evidence or clarification as he deems fit from a claimant for substantiating the whole or part of its claim.

Cost of proof [LP Reg.-24]

A claimant has to bear the cost of proving its claim. Costs incurred by the liquidator for verification and determination of a claim must from a part of liquidation cost. If a claim or part of the claim is found to be false, the liquidator shall endeavor to recover the costs incurred for verification and determination of claim from such claimant, and shall provide the details of the claimant to the Board.

Following points are important while admitting the Claim Amounts of Operational Creditors

1. The claim must be filed with supporting documents
2. Proof of delivery
3. Checking of opening balances.
4. Verification of invoices (i.e., Invoice Amount claimed pertains to the Different group or other group entity but not to Corporate Debtor.)
5. Post invoices
6. Claiming for Invoices amount which are under disputes
7. Debit notes issued by Corporate Debtor
8. Any payments made to Operational Creditor by the Corporate Debtor
9. TDS deduction
10. Admission of interest (i.e. “Explicit agreements or PO terms” must be supported to the interest claimed)
11. Exchange rate fluctuations
12. Contract termination charges
13. Adjustment of Creditor balance & with Debit balances in Corporate Debtor Books
14. Final Admissible claim amount must be to the extent of available information and details.

Admission or Rejection of the claims [Section-40]

The liquidator after making verification of claims under section 39, either admit or reject the claim, in whole or in part, as the case may be. In case if the liquidator rejects a claim, he has to record in writing the reasons for such rejection. The liquidator required to communicate his decision of admission or rejection of claims to the creditor as well as corporate debtor within 7 days of such admission or rejection of claims.

Conclusion

Subject to the provisions of the Code and these regulations, representatives in the consultation committee must have access to all relevant records and information as may be required to provide advice to the liquidator. The liquidator has to convene a meeting of the consultation committee when he considers it necessary and has to convene a meeting of the consultation committee when a request is received from at least 51 percent of representatives in the consultation committee.

The consultation committee must advise the liquidator, by a vote of not less than 66 percent of the representatives of the consultation committee, present and voting. The advice of the consultation committee shall not be binding on the liquidator. Where the liquidator takes a decision different from the advice given by the consultation committee, he has to record the reasons for the same in writing.