Resolution Strategies – CS Professional Study Material

Chapter 17 Resolution Strategies – Corporate Restructuring Insolvency Liquidation & Winding Up Notes is designed strictly as per the latest syllabus and exam pattern.

Resolution Strategies – Corporate Restructuring Insolvency Liquidation & Winding Up Study Material

Question 1.
Central Government has power to examine the books and papers, financial reports even after sanction of the scheme by National Company Law Tribunal – Elaborate the issue in relation to preservation of records of amalgamated companies. (June 2019, 3 marks)
Answer:
In terms of Section 239 of the Companies Act, 2013 that corresponds to Section 396A of Companies Act, 1956 the books and papers of a company that has been amalgamated with or whose shares have been acquired by another company shall not be disposed of without obtaining prior permission of Central Government.

Before granting such approval the Government is empowered to appoint a person to examine the books and papers or any of them for the purpose of ascertaining whether they contain any evidence of the commission of an offence in connection with the promotion, formation or the management of the affairs of the transferor company or its amalgamation, or the acquisition of its shares.

Resolution Strategies - CS Professional Study Material

Question 2.
The liquidator shall ordinarily sell the assets of the corporate debtor through auction method. Opine whether the liquidator can sell assets by a route other than auction method? (Dec 2019, 3 marks)
Answer:
Yes, the liquidator can sell assets by a route other than auction method when:
(a) the asset is perishable;
(b) the asset is likely to deteriorate in value significantly if not sold immediately;
(c) the asset is sold at a price higher than the reserve price of a failed auction; or
(d) the prior permission of the Adjudicating Authority has been obtained for such sale.

Resolution Strategies - CS Professional Study Material

Question 3.
“Debt restructuring involves a reduction of debt and an extension of payment terms or change in terms and conditions”- analyse the statement indicating that any Resolution plan need to be consented by the Committee of Creditors and approved by the National Company Law Tribunal (NCLT). (Aug 2021, 5 marks)
Answer:
Corporate Restructuring is an inorganic business strategy where one or more aspects of a business are redesigned to improve commercial efficiency, manage competition effectively, drive faster pace of growth, ensure effective utilization of resources, and fulfilment of stakeholders’ expectations.

Debt restructuring involves a reduction of debt and an extension of payment tenure or change in terms and conditions. Debt restructuring is more commonly used as a financial tool than compared to equity restructuring. As such in Corporate Insolvency Resolution Process the Committee of Creditors primarily consists of financial creditors.

Section 30(4) of Insolvency and Bankruptcy Code, 2016 envisages approval of the Resolution Plan by the Committee of Creditors before final approval by the Adjudicating Authority i.e., National Company Law Tribunal in terms of Section 33 of the Code.

Resolution Strategies - CS Professional Study Material

Question 4.
“All the assets that are in possession of the Corporate Debtor undergoing liquidation are to be taken into custody by the Liquidator”. Would you analyse the statement? (Aug 2021, 5 marks)
Answer:
For the purposes of liquidation, the liquidator shall form an estate of the assets mentioned, which will be called the liquidation estate in relation to the corporate debtor. The liquidator shall hold the liquidation estate as a fiduciary for the benefit of all the creditors. All the assets of the Corporate Debtor in liquidation are to be taken into custody by the Liquidator on receipt of the order of appointment by National Company Law Tribunal.

Section 36 of the Insolvency and Bankruptcy Code, 2016 (IBC) elaborates the term Liquidation Estate. Accordingly, all such assets that are either in the possession of the Corporate Debtor at its own premises or any other place including encumbered assets, intangible assets such as intellectual property rights, securities, insurance policies, any assets that have been recovered through proceedings for avoidable transactions and assets that have been relinquished by the secured creditors.

Liquidation Estate does not include assets held in trust for third parties, ‘ bailment contracts, and amounts due to workmen towards provident fund, pension or gratuity, leased assets, such other assets as prescribed. Liquidator needs to distinguish between assets that could be included and excluded for taking into custody.

Resolution Strategies - CS Professional Study Material

Question 5.
“In terms of insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 the liquidator can dispose of the assets only through online auction or spot Auction in a traditional manner”. Do you agree? (Aug 2021, 5 marks)
Answer:
Normally, liquidator has to dispose the assets of the Corporate Debtor through auction in a transparent manner and hence many liquidators resort to online auctions.

However, Regulation 32 of Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 enables the liquidator to dispose either on standalone basis, Slump sale, as set of assets or in parcels, as a going concern either the Corporate Debtor or its businesses.

Further, Regulation 33 of Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 prescribes the mode of Sale as specified in Schedule I to the Regulations. It need not be sale by auction but a private sale could be done in cases of perishable assets, assets value may deteriorate requiring immediate sale, assets may fetch more than reserve price in case of failed Auction or permission is obtained from the adjudicating authority.

Resolution Strategies - CS Professional Study Material

Question 6.
Write a short note on sale of assets under insolvency and Bankruptcy
Answer:
Chapter VI (comprising regulations 32 to 40) of the IBBI (Liquidation Process) Regulations, 2016 makes the following provisions for the realization of assets.
Mode of sate [Regulation 33]

  • The liquidator shall ordinarily sell the assets of the corporate debtor through an auction
  • The liquidator may sell the assets of the corporate debtor by means of private sale

Asset memorandum [Regulation 34]

  • the liquidator shall prepare an asset memorandum in accordance with this Regulation within seventy-five days from the liquidation commencement date.
  • The asset memorandum shall provide the following details in respect of the assets which are intended to be realized by way of sale – value of the asset, intended manner of sale, the intended mode of sale, expected amount of realization

Asset sale report [Regulation 36]
On sale of an asset, the liquidator shall prepare an asset sale report in respect of said asset, to be enclosed with the Progress Reports

  • Realization of security interest by secured creditor [Regulation 37]
  • Distribution of unsold assets [Regulation 38]
  • Recovery of monies due [Regulation 39]
  • Liquidator to realize uncalled capital or unpaid capital contribution [Regulation 40]

Resolution Strategies - CS Professional Study Material

Resolution Strategies Notes

Organisational Restructuring
Organizational Restructuring may involve creation of new departments to serve growing markets or downsizing or eliminating departments to conserve overheads.

Financial Restructuring

  • Financial restructuring is the process of reorganizing the financial structure, which primarily comprises of equity capital and debt capital
  • Financial restructuring is done for various business reasons such as to overcome poor financial performance, to gain market share, or to seize emerging market opportunities.
  • The two components of financial restructuring are: Debt Restructuring & Equity Restructuring

Debt Restructuring

  • Debt restructuring is the process of reorganizing the whole debt capital of the company in negotiation with bankers, creditors, vendors.
  • Debt restructuring involves a reduction of debt and an extension of payment terms or change in terms and conditions.

Resolution Strategies - CS Professional Study Material

Equity Restructuring
Equity Restructuring involves reorganization of equity capital. The following comes under equity restructuring:

  • Alteration of share capital
  • Reduction of share capital
  • Buy-back of shares

Sale of assets under insolvency and Bankruptcy Code
Chapter VI (comprising regulations 32 to 40) of the IBBI (Liquidation Process) Regulations,’ 2016 makes the following provisions for the realization of assets.

Mode of sale [Regulation 33]

  • The liquidator shall ordinarily sell the assets of the corporate debtor through an auction
  • The liquidator may sell the assets of the corporate debtor by means of private sale

Asset memorandum [Regulation 34]

  • the liquidator shall prepare an asset memorandum in accordance with this Regulation within seventy-five days from the liquidation commencement date.
  • The asset memorandum shall provide the following details in respect of the assets which are intended to be realized by way of sale – value of the asset, intended manner of sale, the intended mode of sale, expected amount of realization

Resolution Strategies - CS Professional Study Material

Asset sale report [Regulation 36]
On sale of an asset, the liquidator shall prepare an asset sale report in respect of said asset, to be enclosed with the Progress Reports

  • Realization of security interest by secured creditor [Regulation 37]
  • Distribution of unsold assets [Regulation 38]
  • Recovery of monies due [Regulation 39]
  • Liquidator to realize uncalled capital or unpaid capital contribution [Regulation 40]

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