Section 53 of IBC : Section 53: Distribution Of Assets

Explanation using Example

Imagine a manufacturing company, "TechWidgets Ltd.," which has been struggling financially and eventually goes into liquidation. The company has various creditors, including employees, secured lenders, and the government. The liquidator sells the company's assets and must distribute the proceeds according to the priority set out in Section 53 of the Insolvency and Bankruptcy Code, 2016.

Here's how the law is applied:

1. The liquidator first pays off the costs associated with the insolvency resolution and liquidation process.
2. Next, they distribute funds to the workmen for their dues of the last 24 months and to secured creditors who have given up their security interest.
3. Then, they pay the wages and unpaid dues of other employees for the last 12 months.
4. Following that, financial debts owed to unsecured creditors are settled.
5. Any taxes due to the government and unpaid debts to secured creditors are then addressed.
6. Afterwards, any remaining debts are paid.
7. If there are still funds left, preference shareholders receive their share.
8. Lastly, if any assets remain, equity shareholders or partners get their distribution.

Throughout this process, the liquidator's fees are proportionately deducted from the proceeds destined for each class of recipients.

This structured approach ensures an orderly and fair distribution of the company's liquidated assets.