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CS Professional · Corporate Restructuring, Valuation and Insolvency · Resolution Strategies

Sundaram Textiles Ltd is in CIRP. A bidder proposes a resolution plan under which the company's weaving unit will be demerged into a new company and the remaining business will continue in the corporate debtor. Under Regulation 37 of the CIRP Regulations, can the plan provide for this?

Yes. Regulation 37 of the CIRP Regulations expressly allows a resolution plan to restructure the corporate debtor through merger, amalgamation or demerger. The list of measures is illustrative, not exhaustive, so a demerger of the weaving unit is a valid resolution measure during CIRP.

  1. ANo, because only a sale of assets is permitted as a resolution measure
  2. BYes, because the plan may provide for restructuring of the corporate debtor by way of merger, amalgamation and demergerCorrect
  3. CNo, because a demerger is allowed only after liquidation begins
  4. DYes, but only if the Central Government first gives its consent to the demerger

Explanation

Regulation 37 lists, among the measures a resolution plan may contain, restructuring of the corporate debtor by way of merger, amalgamation and demerger. The list is not exhaustive, since it says 'including but not limited to'. Hence a demerger is a permissible plan measure, and it is not confined to liquidation or to asset sale.

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