The NCLAT, in its recent decision in Union of India v.Vijaykumar V Iyer,[1] has arguably created a new class of creditors, not previously known to the provisions of the Insolvency and Bankruptcy Code, 2016 (‘IBC’).

The National Company Law Appellate Tribunal (NCLAT) has held that priorities amongst the secured creditors (first charge or second charge) will not prevail in distribution of assets in liquidation, in a case where the creditors had elected for relinquishment of security interest and for distribution of assets according to Section 53 of the Insolvency and Bankruptcy Code, 2016.

In an interesting case of intersection of insolvency and copyright laws, the Delhi High Court has held that the suit for alleged infringement of copyrights, arising out of and/or is in relation to the insolvency resolution plan of a corporate debtor must be adjudicated by the NCLT and that the proceedings in the Civil Court are barred. The suit was dismissed as not maintainable before the High Court in view of Sections 230 and 231 read with Section 60(5) of the Insolvency and Bankruptcy Code, 2016.

Observing that the short-term loans advanced by few Appellants on exorbitant rates of interest (40% to 60% per annum) were covered under Extortionate Credit Transactions as prohibited under Section 50(1) of the Insolvency and Bankruptcy Code, 2016, the NCLAT has set aside the entire transactions as illegal and void and held them as not entitled to any relief.

Introduction

The Supreme Court has held that transfer of winding up proceedings from High Court to NCLT on application of financial creditor not party to proceedings before Court is permissible.

Observing that the proceedings for winding up of a company are actually proceedings in rem to which the entire body of creditors is a party, the Court held that the words ‘party or parties’ appearing in 5^th proviso to Section 434(1)(c) of the Companies Act, 2013 would take within its fold any creditor of the company in liquidation.

On March 24, 2020, the Finance Minister announced several relief measures across sectors, relating to Statutory and Regulatory compliance matters, in view of the COVID-19 outbreak in the country. The main relief measures have been detailed below, along with their implications for businesses. 

In order to protect the Corporate Debtor and its assets from liabilities for offences committed prior to the commencement of Corporate Insolvency Resolution Process (CIRP), the President of India has on 28th of December 2019 promulgated an Ordinance – Insolvency and Bankruptcy (Amendment) Ordinance, 2019.

Key Points:

No provision in the Code or insolvency regulations dictates that the bid of any Resolution Applicant has to match liquidation value of the estate of the Corporate Debtor. If the resolution plan has been approved by the Committee of Creditors by application of their commercial sense, as well as the plan has been considered as proper in terms of Section 30 of the Code, the Adjudicating Authority cannot interfere or re-assess the same under Section 31 of the said Code.

The terms of the transaction documents for mergers and acquisitions are often dictated by the economics of investment and the bargaining position of the parties. The terms so contractually agreed upon must, however, always be within the operative legal framework. Liquidation Preference (“LP”) is a tool often used to embolden investors seeking security of their investment. LP is crucial, especially where the investors anticipate exit at a value lower than their initial investment.