Waterfall Mechanism

WATERFALL MECHANISM
Section 53 of IBC, 2016

 It states that the proceeds from sale of the liquidation assets shall be
distributed in following order of priority with stipulated period and
manner.
1. Full IRP and liquidation cost shall be paid.

2. Workmen’s dues for period of 24 months preceding the
liquidation commencement date; or debts owed to secured
creditor in the event that creditor has relinquished the secutity
as mentioned under Section 52
3. Wages and unpaid dues to employees for period of 12 months
preceding the liquidation commencement date;
4. Financial debt to unsecured creditors.
5. Any amount due to any govt. or debts to secured creditor for
any unpaid amount.
6. Any remaining debt or dues
7. Preference shareholders
8. Equity Shareholders
 Any agreement between recipients under subsection (1) with equal

ranking ,if disruption the order shall be disregarded, by the liquidator
 Fees paid to the liquidator shall be deducted proportionately from
proceeds payable to each class/
Insolvency and Bankruptcy Board of India (Liquidation Process)

Regulations, 2016
Regulation 41- All money to be paid in to bank account.
 Liquidator shall open a bank account in the name of CD with the

words’ liquidation’ for all monies
 All cheques/ DD shall be deposited in the account without any
deductions
 Liquidator may maintain 1 lakh cash to meet liquidation cost
 All payments worth more than 5000 shoud be done either by cheque
or online banking transacti
Regulation 42- Distribution.
 Distribution cannot start before the list of the stakeholders and the
asset memorandum is dilled with Adjudication Authority.
 Within 6 months starts distributing
 Cost incurred in IRP shall be deducted before such deduction.
Regulation 43- Return of money.
A stakeholder shall forthwith return any monies received by him in

distribution, which he was not entitled to at the time of distribution, or
subsequently became not entitled to.
Regulation 44- Completion of liquidation.
 Completion within 2 years

 If not completed, He can make an application to the Adjudicating
Authority with the reason of delay, and specifying thee need of such
additional time required.
Regulation 45- Final report prior to dissolution.
 Liquidator shall make an account of the liquidation to specify how it

was made.
 If liquidation cost increases then explain the reason for the same.
 Final report of dissolution
FROM THE ACT AND REGULATION
SECTION 53 of IBC, 2016
Notwithstanding anything to the contrary contained in any law enacted by
the Parliament or any State Legislature for the time being in force,
the proceeds from the sale of the liquidation assets shall be distributed in
the following order of priority and within such period and in such manner as
may be specified, namely :—
(a) the insolvency resolution process costs and the liquidation costs paid in
full;
(b) the following debts which shall rank equally between and among the
following :—
(i) workmen’s dues for the period of twenty-four months preceding the
liquidation commencement date; and
(ii) debts owed to a secured creditor in the event such secured creditor
has relinquished security in the manner set out in section 52;
(c) wages and any unpaid dues owed to employees other than workmen for
the period of twelve months preceding the liquidation commencement date;
(d) financial debts owed to unsecured creditors;
(e) the following dues shall rank equally between and among the
following:—
(i) any amount due to the Central Government and the State
Government including the amount to be received on account of the
Consolidated Fund of India and the Consolidated Fund of a State, if any, in
respect of the whole or any part of the period of two years preceding the
liquidation commencement date;
(ii) debts owed to a secured creditor for any amount unpaid following
the enforcement of security interest;
(f) any remaining debts and dues;

(g) preference shareholders, if any; and
(h) equity shareholders or partners, as the case may be.
(2) Any contractual arrangements between recipients under sub-section (1)

with equal ranking, if disrupting the order of priority under that sub-section
shall be disregarded by the liquidator.
(3) The fees payable to the liquidator shall be deducted proportionately

from the proceeds payable to each class of recipients under sub-section
(1), and the proceeds to the relevant recipient shall be distributed after
such deduction.
Explanation.—For the purpose of this section—
(i) it is hereby clarified that at each stage of the distribution of proceeds in

respect of a class of recipients that rank equally, each of the debts will
either be paid in full, or will be paid in equal proportion within the same
class of recipients, if the proceeds are insufficient to meet the debts in full;
and
(ii) the term “workmen’s dues” shall have the same meaning as assigned to
it in section 326 of the Companies Act, 2013.
Insolvency and Bankruptcy Board of India (Liquidation Process)

Regulations, 2016
41. All money to be paid in to bank account.
(1) The liquidator shall open a bank account in the name of the corporate
debtor followed by the words ‘in liquidation’, in a scheduled bank, for the
receipt of all moneys due to the corporate debtor.
(2) The liquidator shall deposit in the bank account opened under sub-
regulation (1) all moneys, including cheques and demand drafts received
by him as the liquidator of the corporate debtor, and the realizations of
each day shall be deposited into the bank account without any deduction
not later than the next working day.
(3) The liquidator may maintain a cash of one lakh rupees or such higher
amount as may be permitted by the Adjudicating Authority to meet
liquidation costs.
(4) All payments out of the account by the liquidator above five thousand
rupees shall be made by cheques drawn or online banking transactions
against the bank account.
42. Distribution.
(1) Subject to the provisions of section 53, the liquidator shall not
commence distribution before the list of stakeholders and the asset
memorandum has been filed with the Adjudicating Authority.
(2) The liquidator shall distribute the proceeds from realization within six
months from the receipt of the amount to the stakeholders.
(3) The insolvency resolution process costs, if any, and the liquidation costs
shall be deducted before such distribution is made.
43. Return of money.
A stakeholder shall forthwith return any monies received by him in

distribution, which he was not entitled to at the time of distribution, or
subsequently became not entitled to.
44. Completion of liquidation.
(1) The liquidator shall liquidate the corporate debtor within a period of two
years.
(2) If the liquidator fails to liquidate the corporate debtor within two years,
he shall make an application to the Adjudicating Authority to continue such
liquidation, along with a report explaining why the liquidation has not been
completed and specifying the additional time that shall be required for
liquidation.
45. Final report prior to dissolution.
(1) When the corporate debtor is liquidated, the liquidator shall make an
account of the liquidation, showing how it has been conducted and how the
corporate debtor’s assets have been liquidated.
(2) If the liquidation cost exceeds the estimated liquidation cost provided in
the Preliminary Report, the liquidator shall explain the reasons for the
same.
(3) The final report shall form part of the application for the dissolution of
the corporate debtor to the Adjudicating Authority to be made under section
54.
46. Unclaimed proceeds of liquidation or undistributed assets.
(1) Before the order of dissolution is passed under section 54(2), the
liquidator shall apply to the Adjudicating Authority for an order to pay into
the Companies Liquidation Account in the Public Account of India any
unclaimed proceeds of liquidation or undistributed assets or any other
balance payable to the stakeholders in his hands on the date of the order of
dissolution.
(2) Any liquidator who retains any money which should have been paid by
him into the Companies Liquidation Account under this Regulation shall
pay interest on the amount retained at the rate of twelve per cent per
annum, and also pay such penalty as may be determined by the Board.
(3) The liquidator shall, when making any payment referred to in sub-
regulation (1), furnish to the authority with which the corporate debtor is
registered, and the Board, a statement setting forth the nature of the sums
included, the names and last known addresses of the stakeholders entitled
to participate therein, the amount to which each is entitled to and the nature
of their claim.
(4) The liquidator shall be entitled to a receipt from the Reserve Bank of
India for any money paid to it under sub-regulation (2), and such receipt
shall be an effectual discharge of the liquidator in respect thereof.
(5) A person claiming to be entitled to any money paid into the Companies
Liquidation Account may apply to the Board for an order for payment of the
money claimed; which may, if satisfied that such person is entitled to the
whole or any part of the money claimed, make an order for the payment to
that person of the sum due to him, after taking such security from him as it
may think fit.
(6) Any money paid into the Companies Liquidation Account in pursuance
of this Regulation, which remains unclaimed thereafter for a period of
fifteen years, shall be transferred to the general revenue account of the
Central Government.

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WATERFALL MECHANISM

Section 53 of IBC, 2016

1. Full IRP and liquidation cost shall be paid.

 Any agreement between recipients under subsection (1) with equal

Insolvency and Bankruptcy Board of India (Liquidation Process)

Regulation 41- All money to be paid in to bank account.

 Liquidator shall open a bank account in the name of CD with the

Regulation 42- Distribution.

Regulation 43- Return of money.

A stakeholder shall forthwith return any monies received by him in

Regulation 44- Completion of liquidation.

 Completion within 2 years

Regulation 45- Final report prior to dissolution.

 Liquidator shall make an account of the liquidation to specify how it

(d) financial debts owed to unsecured creditors;

(f) any remaining debts and dues;

(h) equity shareholders or partners, as the case may be.

(2) Any contractual arrangements between recipients under sub-section (1)

(3) The fees payable to the liquidator shall be deducted proportionately

Explanation.—For the purpose of this section—

(i) it is hereby clarified that at each stage of the distribution of proceeds in

Insolvency and Bankruptcy Board of India (Liquidation Process)

41. All money to be paid in to bank account.

43. Return of money.

A stakeholder shall forthwith return any monies received by him in

44. Completion of liquidation.

45. Final report prior to dissolution.

46. Unclaimed proceeds of liquidation or undistributed assets.

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