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CS Professional · Corporate Restructuring, Valuation and Insolvency · Pre-Packaged Insolvency Resolution Process

Before the pre-pack application is filed, Arvind Metals Ltd seeks financial creditors' approval of the proposed insolvency professional. Its financial debt owed to unrelated creditors is Rs 100 crore, and related-party financial debt is Rs 40 crore. What approval in value is required for the proposal of the resolution professional?

Approval must come from unrelated financial creditors holding at least 66% in value of the debt due to them, here 66% of Rs 100 crore, which is Rs 66 crore. Related-party debt of Rs 40 crore is excluded from the base under section 54A(2)(e).

  1. ANot less than 66% of the Rs 100 crore due to creditors who are not related partiesCorrect
  2. BNot less than 66% of the total Rs 140 crore
  3. CA simple majority of Rs 100 crore
  4. DNot less than 75% of Rs 140 crore

Explanation

Section 54A(2)(e) requires approval by financial creditors, not being related parties, representing not less than 66% in value of the financial debt due to such creditors. Related party debt is excluded, so the base is Rs 100 crore, meaning at least Rs 66 crore. Including the Rs 40 crore would use the wrong base.

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