Skip to content

CS Professional · Insolvency and Bankruptcy - Law and Practice · Liquidation of Corporate Person

Tarang Textiles Ltd is in liquidation. The liquidator, Mr. Iyer, has recovered Rs 40 lakh from a court order setting aside a transaction under the avoidance provisions of Chapter III. Under section 36 of the Code, how should this recovery be treated?

The Rs 40 lakh recovered through avoidance proceedings forms part of the liquidation estate. Section 36(3)(f) expressly includes assets recovered through avoidance of transactions, and the liquidator holds the estate as a fiduciary for the benefit of all creditors, not for any single creditor.

  1. AIt forms part of the liquidation estate assets, held by the liquidator as a fiduciary for all creditorsCorrect
  2. BIt is kept outside the liquidation estate and paid to the Board
  3. CIt belongs only to the creditor who first alleged the transaction was avoidable
  4. DIt is paid to the shareholders of the corporate debtor before creditors

Explanation

Section 36(3)(f) includes assets or their value recovered through proceedings for avoidance of transactions in the liquidation estate. Under section 36(2) the liquidator holds the estate as a fiduciary for the benefit of all creditors. Treating it as belonging to one creditor or to shareholders contradicts this.

Did you get it right without looking?

One question tells you little. A timed set on Liquidation of Corporate Person shows your real accuracy, how long you take and where you lose marks.

Practise Liquidation of Corporate PersonFree diagnostic mock

More Liquidation of Corporate Person questions