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IBBI Circular on Voluntary Liquidation Process for Financial Service Providers: Compliance & Reporting Guidelines


The Insolvency and Bankruptcy Board of India (‘IBBI’) recently introduced a significant circular[i] for reporting/sharing information in the voluntary liquidation process (‘VLP’). This circular includes compliance for initiation of the VLP of financial service providers (‘FSPs’). It delineates regulatory directives essential for adherence during both the initiation and conclusion phases of the VLP for FSPs. This move highlights the IBBI’s commitment to enhancing transparency and regulatory compliance within the framework of VLP for financial entities.

About the Amendment

1.    Initiation of VLP: The Insolvency and Bankruptcy Code, 2016 (‘IBC’) allows for the VLP for corporate entities. However, it is important to note that the definition of a ‘corporate person’ excludes FSPs. This exclusion necessitated a separate regulatory framework for FSPs undergoing VLP.

A.  Notification and Permission Requirement: FSPs intending to undergo VLP must be notified by the central government (‘CG’), following consultation with financial regulators. Additionally, obtaining prior permission from the appropriate financial regulator is mandatory before commencing the liquidation process. Despite these requirements, the IBBI noted instances where FSPs initiate VLP without adhering to notification and permission protocols.

B.   Directive for Compliance: To ensure regulatory adherence, it has been directed that the liquidator must explicitly declare their status as FSPs, as notified by the CG under s. 227 of the IBC. Moreover, they must affirm that they have obtained prior permission from the appropriate regulator before commencing the liquidation process.

2.   Sharing of Information with IBBI:

A.  Submission Requirements: During the liquidation process, specific documents and orders are mandated to be shared by the liquidators the IBBI and the regulatory authorities for oversight and for effective record-keeping purposes.

B.   Form H and Final Report: Liquidators are directed to submit a copy of Form H and the final report before the Adjudicating Authority, as per reg. 38 of the IBBI (VLP) Regulations, 2017. This step ensures that the IBBI has access to comprehensive documentation of the liquidation proceedings.

C.   Dissolution Order: Additionally, the dissolution order, marking the conclusion of the liquidation process, must also be submitted to the IBBI. This requirement facilitates the IBBI’s role in documenting and overseeing the orderly dissolution of corporate entities.

3.   Regulatory Authority and Compliance: The issuance of directives under s. 196 of the IBC underscores the regulatory authority’s commitment to ensuring compliance and transparency throughout the VLP for FSPs. This approach ensures adherence to the highest standards of regulatory oversight, reinforcing the integrity of the framework and fostering stakeholders’ trust in the insolvency process.


The primary objective of this amendment is to underscore the critical importance of regulatory compliance and transparency within the VLP applicable to FSPs. By delineating explicit directives on notification, permission, and reporting obligations, the amendment aims to bolster regulatory oversight and safeguard the integrity of the entire insolvency framework. Such adherence is not only fundamental for the orderly conduct of liquidation processes but also vital for reinforcing trust and accountability in the regulatory ecosystem governing financial entities. Liquidators must diligently fulfil the reporting requirements outlined in this circular, ensuring a seamless and lawful VLP.

End Note:

[i] No. IBBI/LIQ/67/2024 dated 13.02.2024.

Authored by Pratima Ajmera, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.

To read more on FSPs in relation to the IBC, visit our piece titled 'Deciphering Financial Debt: NCLAT Affirms Non-Applicability of IBC to Financial Service Providers' by Ms. Purvi Garg.


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