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CS Professional · Corporate Restructuring, Valuation and Insolvency · Liquidation on or after Failing of Resolution Plan

Godavari Pharma Ltd is in liquidation. Its secured creditor, Bank X, enforces its security outside the liquidation process and recovers less than its debt. Where does the unpaid balance rank in the waterfall?

The unpaid balance after enforcement of security ranks equally with Central and State Government dues for the two years preceding liquidation commencement, which is below unsecured financial debts and above remaining debts and dues, preference shareholders and equity holders.

  1. AEqually with dues to the Central and State Governments for the two years preceding liquidation commencementCorrect
  2. BEqually with workmen's dues for 24 months
  3. CAhead of financial debts owed to unsecured creditors
  4. DAfter preference shareholders

Explanation

Debts owed to a secured creditor for any amount unpaid following enforcement of security interest rank equally with Government dues for two years before liquidation commencement. This sits below unsecured financial debts and above remaining debts and dues. The workmen-equal rank applies only to a secured creditor who relinquished security.

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