IBBI Clarifies Liquidator’s Fee Guidelines: Asset Sales and Liquidation Costs Explained

The Insolvency and Bankruptcy Board of India (IBBI) has specified that the fee for liquidators should be computed based on the proceeds from asset sales, not on available cash, term deposits, mutual funds, or listed shares at the onset of liquidation.

The IBBI highlighted a misunderstanding in the market, emphasizing that certain liquidation costs need to be subtracted to compute the “other liquidation cost”. This particular sum should be removed from the proceeds before determining the liquidator’s charges.

The regulator noted instances where liquidators do not factor in costs associated with maintaining and securing the assets of the corporate debtor (CD) or costs related to the continued operation of the CD when deriving “other liquidation cost”.

Furthermore, the IBBI pointed out that some liquidators, on their own accord, omit certain timeframes, such as when a court halts the sale of a specific asset or a delay caused by a secured creditor in giving up rights, when determining their fee.

The regulatory body clarified that any time exclusion must bear a judicial endorsement and should strictly relate to the asset in question.

In their latest notification, the IBBI has requested insolvency professionals to confirm that their fees align with this clarification. The IBBI further stated that if overcharged fees are refunded and allocated by October 31, 2023, no punitive actions will be taken for initially overcharging, as long as the fees are subsequently returned.