Liquidation After IRP – Corporate Restructuring, Insolvency, Liquidation & Winding-Up Important Questions
Question 1.
The Resolution Professional has reported cases of undervalued transactions during resolution process to the Adjudicating Authority. What orders can be passed by the Adjudicating Authority in this regard.
Answer:
→ If the Liquidator or the Resolution Professional, on verification of transactions of the Corporate Debtor, determine that certain transactions were undervalued, he shall make an application to the Adjudicating Authority to declare such transactions as void and reverse their effect.
→ Section 48 of the Insolvency and Bankruptcy Code, 2016 lists out the orders that may be passed by the Adjudicating Authority setting aside the undervalued transaction.
→ The Adjudicating Authority may provide for the following:
(a) require any property transferred as part of the transaction, to be vested in Corporate Debtor;
(b) release or discharge (in whole or in part) any security interest granted by the corporate debtor;
(c) require any person to pay such sums, in respect of benefits received by such person, to the liquidator, as the Adjudicating Authority may direct; or
(d) require the payment of such consideration for the transaction as may be determined by an independent expert.
Question 2.
“Committing default or failure of Resolution Plan may lead to liqui-dation of a body corporate under Insolvency and Bankruptcy Code, 2016 but could there be other circumstances for which a Tribunal may order for winding-up ?” Examine and explain.
Answer:
→ Part II of the Insolvency and Bankruptcy Code, 2016 lays down the law relating to liquidation process for corporate persons. Firstly, an attempt is made to resolve the insolvency of Corporate Debtor through the Corporate Insolvency Resolution Process. The Liquidation provisions come into effect if the attempts to resolve corporate insolvency fail.
→ The NCLT shall pass an order for liquidation of Corporate Debtor in following circumstances:
- NCLT does not receive a resolution plan (including fast-track process) within the maximum time period permitted for resolving the corporate insolvency; or
- NCLT rejects the resolution plan for the non-compliance of the specified requirements; or
- During Corporate Insolvency Resolution Process, the Committee of Creditors have decided to liquidate the Corporate Debtor. Such decision is taken by the Committee of Creditors in their meeting, by not less than 66% of the voting share. The Resolution Professional shall communicate such decision of Committee of Creditors to the NCLT; or
- Where resolution plan approved by NCLT is contravened by the Corporate Debtor.
→ Further, as per Sec. 271 of the Companies Act, 2013, a company may be wound-up by the National Company Law Tribunal (NCLT) if
(a) the company has passed a special resolution of its being woundup by the Tribunal;
(b) the company has acted against the interests of the sovereignty and integrity of India, the security of the State, friendly relations with foreign States, public order, decency or morality;
(c) application made by ROC or any person authorized by the Central Govt, stating that the affairs of the company have been conducted in a fraudulent manner, unlawful purpose or the promoters and management have been guilty of fraud or misconduct in connection therewith;
(d) the company has defaulted in filing its financial statements or annual returns for immediately preceding 5 consecutive financial years; or
(e) the Tribunal is of the opinion that it is just and equitable that company should be wound-up.
Question 3.
“The Insolvency and Bankruptcy Code makes significant changes in the priority of claims for distribution of liquidation proceeds’. Comment.
OR
Question 4.
You are the liquidator of ABC Ltd. which is currently undergoing liquidation process. As a liquidator, indicate how you will handle the priority of claims for distribution of liquidation proceeds of ABC Ltd. as enumerated in the Insolvency and Bankruptcy Code, 2016.
Answer:
- Section 53 of the Insolvency and Bankruptcy Code, 2016 provides the priority of claims for distribution of liquidation proceeds of a corporate debtor.
- The priority of claims mentioned in the Insolvency and Bankruptcy Code, 2016 is also known as the ‘Waterfall Mechanism’.
- It provides for payment to unsecured financial creditors before payment towards Government dues, unlike priority as specified by the Companies Act, 2013.
- A per the provisions of the Code, the proceeds from the sale of the liquidation assets shall be distributed in the following order of priority-
- the insolvency resolution process costs and the liquidation costs paid in full;
- workmen’s dues for 24 months preceding liquidation commencement date and debts owed to secured creditors, on a pari-passu basis;
- wages and any unpaid dues owed to employees for 12 months preceding the liquidation commencement date;
- financial debts owed to unsecured creditors;
- any amount due to the Central and State Govt.;
- any remaining debts and dues;
- preference shareholders, if any; and
- equity shareholders.