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CA Final · Integrated Business Solutions (Multidisciplinary Case Study with Strategic Management) · Corporate and Economic Laws

Case: Surya Components Ltd's Board of 9 directors includes a nominee of a lender, and the company has accumulated losses. The CFO proposes to repay Rs 10 crore of an old loan to a group company ahead of other creditors while the company is clearly insolvent. A resolution professional is later appointed in a corporate insolvency resolution process under the IBC, 2016. Which description best fits the transaction if it was made within the look-back period to a related party?

The repayment is a preferential transaction under the IBC because it favoured a related-party creditor over others on an antecedent debt. For related parties the look-back period is two years before the insolvency commencement date, and the adjudicating authority can avoid it on the resolution professional's application.

  1. AA preferential transaction that the adjudicating authority can avoid, with a look-back of two years for related partiesCorrect
  2. BA fraudulent trading action only under the Companies Act
  3. CA valid transaction because repayment of debt is always protected
  4. DA transaction avoidable only if the lender consents

Explanation

Under IBC, a transfer for the benefit of a creditor or surety on account of an antecedent debt that puts them in a better position than in liquidation is a preferential transaction. The look-back is two years for related parties and one year for others, before the insolvency commencement date. The resolution professional can apply to the NCLT to avoid it.

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