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CS Professional · Insolvency and Bankruptcy - Law and Practice · Group Insolvency

Rohan Infra Ltd is in CIRP. Its sister company, Rohan Realty Ltd, outside the process, is not in default but has been used to receive diverted funds from Rohan Infra. Creditors want the group dimension recognised. Which statement is most accurate regarding the concept of group insolvency here?

The inter-company relationship and diversion of funds are relevant to the group picture, and avoidance transaction provisions can be used. But insolvency is not automatic for related companies; each entity enters CIRP only on its own default through the prescribed application, so Rohan Realty does not automatically enter the process.

  1. AGroup insolvency requires every group company to be in default, so Rohan Realty is irrelevant
  2. BGroup insolvency cannot be considered as the sister company is not a subsidiary
  3. CThe relationship between group entities, including diversion of funds, is relevant to the group view, although each entity's insolvency is initiated on its own default and the Code's avoidance provisions remain availableCorrect
  4. DRohan Realty automatically enters CIRP because of the relationship

Explanation

Group linkages such as fund diversion matter for understanding the group's affairs, and the resolution professional can use avoidance provisions against transactions. However, each company enters CIRP only on its own default through due process, so there is no automatic entry and no rule that all must be in default.

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