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CS Professional · Insolvency and Bankruptcy - Law and Practice · Bankruptcy Order for Individuals and Partnership Firms

A bankruptcy order is passed on 1 April against Gupta & Sons, a firm with partners Rohit and Sanjay. Axis-type secured creditor Bharat Bank holds security from the firm and takes no step to realise it until 15 May. What is the consequence for the bank?

The bank may still realise its security, since a bankruptcy order does not affect a secured creditor's right. However, because it took no action within thirty days of the commencement date, it loses entitlement to interest on the debt after that date.

  1. AThe order does not stop the bank from realising its security, but it loses interest on its debt after 1 April because it did not act within thirty daysCorrect
  2. BThe bank cannot realise its security at all without leave of the Adjudicating Authority
  3. CThe bank keeps full interest, since a secured creditor is unaffected by delay
  4. DThe order operates only against the firm, so the bank may proceed against the partners personally without limit

Explanation

A bankruptcy order does not affect a secured creditor's right to realise its security. But if it takes no action within thirty days of the bankruptcy commencement date, it is not entitled to interest on its debt after that date. The order against a firm also operates as one against each partner, so the last option is wrong.

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