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

In a liquidation, two creditors ranking equally under the same class agree privately that one will be paid before the other from the proceeds. How must the liquidator treat this arrangement?

The liquidator must disregard any contractual arrangement between equally ranking recipients that disrupts the statutory order of priority. Consent of the creditors does not matter, and insufficient proceeds are shared in equal proportion within the class.

  1. ADisregard it if it disrupts the order of priorityCorrect
  2. BGive effect to it if both creditors consent in writing
  3. CGive effect to it only if the liquidator's fees are waived
  4. DRefer it to the Committee of Creditors for approval

Explanation

Contractual arrangements between equal-ranking recipients that disrupt the statutory order of priority are to be disregarded by the liquidator. Consent of the parties does not validate them. Also, where proceeds are insufficient, equal-ranking debts are paid in equal proportion.

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