Sale of Assets, Schemes and Dissolution in IBC Liquidation

A liquidation ends in one of a few ways. Usually the liquidator sells the assets, distributes the proceeds and has the company dissolved. Sometimes creditors and members agree a scheme that keeps the company alive. For some years, the company could also be sold as a running business. The 2025 and 2026 changes have reshaped these endings: going concern sales have been removed, schemes have been tightened, and dissolution must follow within 180 days. This note explains each exit route.

1. Modes of Sale, Regulation 32

Figure 1: How the liquidator may sell

• Modes. The liquidator may sell an asset on a standalone basis, assets in a slump sale, a set of assets collectively, or assets in parcels.
• Secured assets. An asset subject to a security interest can be sold by the liquidator only after the security interest has been relinquished to the liquidation estate (Topic 56)
• Auction. Sale is ordinarily by auction under Schedule I to the regulations; after 2026, the auction notice must disclose any payment extension beyond 90 days.
• Private sale. Allowed only where the asset is perishable, is likely to lose value significantly if not sold promptly, or the NCLT has permitted it; after 2026, it also needs the prior approval of 66 per cent of the committee of creditors, except in those urgent cases.
• Ineligible buyers. No person ineligible under section 29A may buy the assets, and sales to related parties of the corporate debtor or the liquidator, or to professionals appointed by the liquidator, need the NCLT's permission (Topic 38)

2. The End of Going Concern Sales

• The earlier framework. Regulation 32 allowed the sale of the corporate debtor, or its business, as a going concern, and Regulation 32A required the liquidator to attempt such a sale for 90 days where the committee recommended it; where the corporate debtor itself was sold, the liquidation closed without dissolving it.
• Removal. With effect from 14 October 2025, the IBBI omitted the going concern modes for cases where such a sale had not begun.
• Reasons. The IBBI noted that going concern sales recovered less on average than ordinary liquidations, that running the business during liquidation added costs, that buyers sought reliefs the Code did not provide, and that the Standing Committee on Finance had recommended deletion.
• Consequence. Rescue of a viable business is now expected to happen in the CIRP, including through the one-time restoration of the CIRP under section 33(1A) (Topic 53)

3. Compromise or Arrangement, Regulation 2B

Figure 2: Two ways a liquidation can end

• Background. Section 230 of the Companies Act permits a compromise or arrangement with creditors and members, including for a company in liquidation, and the NCLAT in 2019 held that it could be used in liquidation under the Code; Regulation 2B was then inserted.
• Arun Kumar Jagatramka v Jindal Steel and Power, 2021. The Supreme Court held that a person ineligible under section 29A cannot propose a scheme under section 230 for a company in liquidation under the Code, since the scheme would otherwise let promoters regain the company indirectly (Topic 39)
• After 2026. The liquidator may file a scheme only if it has been approved by the majority required under section 230(6), and the amount realisable by creditors under it exceeds the liquidation value as of the insolvency commencement date.

4. Distribution and Dissolution, Section 54

Figure 3: From realisation to dissolution

• Distribution. The liquidator distributes the proceeds under section 53 within the period specified, and may disclaim onerous property with the committee's approval.
• Section 54(1). Where the assets have been completely liquidated, the liquidator applies to the NCLT for dissolution; as amended in 2026, this must be done within 180 days of the liquidation commencement date, extendable by the NCLT by up to 90 days.
• Section 54(2) and (4). The NCLT orders that the corporate debtor be dissolved from the date of the order, and must pass the order within 30 days, recording reasons for any delay.
• Section 54(3). A copy of the order is forwarded to the authority with which the corporate debtor is registered.
• Early dissolution. Where the realisable assets are insufficient to cover the costs of liquidation, the liquidator may seek early dissolution; after 2026, this needs a decision of 66 per cent of the committee.

5. Direct Dissolution and Pending Proceedings

• Section 54(2A). Where the committee decides under section 33(2) to dissolve the corporate debtor, the NCLT may order dissolution without a liquidation; remaining assets are disposed of as specified, and any surplus is credited to the Insolvency and Bankruptcy Fund under section 224.
• Section 54(1A), (1B) and (2B). Pending avoidance, fraudulent or wrongful trading and section 47 proceedings, and suits relating to distributable proceeds, continue after dissolution in the manner the committee decides, which also determines how their proceeds are distributed.

6. Frequently Asked Questions

Can a liquidator now sell a corporate debtor as a running business?

Not in cases where such a sale had not begun by 14 October 2025, when the going concern modes were omitted. The liquidator sells assets individually, collectively, in a slump sale or in parcels.

Can the former promoter buy the factory at the liquidation auction?

Not if he is ineligible under section 29A, which applies to buyers in liquidation. A sale to a related party of the corporate debtor also needs the NCLT's permission.

Do avoidance applications lapse when the company is dissolved?

No. After 2026, they continue in the manner decided by the committee of creditors, which also decides how any recovery is distributed (section 54(1A) and (2B)).

Can a scheme of arrangement under section 230 still save a company in liquidation?

Yes, but only if approved by the statutory majority under section 230(6), giving creditors more than the liquidation value, and not proposed by a person ineligible under section 29A.

7. Related Topics

• Topic 39: Promoters, Section 29A, Settlements and Liquidation. Schemes and promoters.
• Topic 53: Section 33. Initiation of liquidation and restoring the CIRP.
• Topic 58: Liquidation Costs and Creditor Oversight. The CoC in liquidation.