The Insolvency and Bankruptcy Code, 2016 (IBC/Code) creates an ecosystem for maximizing the value of assets of the corporate debtor (CD) and balancing the interests of all stakeholders in a time-bound manner. A significa

The Insolvency and Bankruptcy Code, 2016 (IBC/Code) creates an ecosystem for maximizing the value of assets of the corporate debtor (CD) and balancing the interests of all stakeholders in a time-bound manner. A significant value of insolvent entities is often locked in assets underlying avoidance transactions which are undertaken by the CD prior to the initiation of the Corporate Insolvency Resolution Process (CIRP). The resolution professional (RP) or the liquidator is obliged to file applications, in respect of avoidance transactions (preferential, undervalued, extortionate and fraudulent transactions) found by him during CIRP and liquidation processes before the Hon'ble Adjudicating Authority (AA), seeking appropriate relief permissible under the Code. While the RP/Liquidator may have filed an application with the AA based on his determination, it may not always be possible for the AA to consider and dispose of the application during the tenure of the CIRP or the liquidation process. Section 26 of the Code clarifies that the filing of an avoidance application by the RP shall not affect the proceedings of CIRP. Avoidance applications and CIRP are a separate set of proceedings and avoidance applications can be continued post-completion of CIRP. The IBC provides that the resolution / liquidation process should not be held up if avoidance transaction applications are pending. During CIRP, if the decision on avoidance transactions is pending before resolution is finalised, the amount would claw back to CD for the benefit of creditors. The CIRP Regulations mandate that a resolution plan should contain the details of the party / person who will pursue these avoidance transactions after the approval of the resolution plan, who will get the proceeds and the manner in which the proceeds, if any, from such proceedings will be distributed. Consequently, after the resolution plan is approved, the RP has no role in pursuing these transactions and creditors/successful resolution applicant (SRA) will have to make their own arrangements to pursue them before the AA. The amount clawed back would reflect in higher bids. In cases where decision on avoidance transactions is not available, the avoidance transactions being assets of the CD, could be permitted by the CoC to be bid by prospective resolution applicants (PRAs) in the resolution plan. In case the CoC decides to assign the avoidance transactions to a resolution applicant (RA), the specifics of avoidance transactions should be made explicit in the Information Memorandum (IM) and Request for Resolution Plan (RFRP), allowing prospective RAs to account for the value of avoidance transactions while submitting their plan. The CoC in the resolution plan should not give the proceeds of avoidance transactions to the RA without detailing such transactions in the IM or RFRP and without transparent bidding for such transactions. Another option could be to invite bids for avoidance transactions separately after obtaining the approval of AA and the amount recovered could be appropriated by the creditors post-approval from the AA. Since avoidance transactions involve significant sums and potentially result in large recoveries, creditors should keep these avoidance transactions to themselves and benefit from the upside. XYZ Company Limited, who is now under CIRP, The Committee of Creditors on the advice of Resolution Professional as appointed Forensic Auditor to track the transactions and to identify whether any transactions had been done in violations of the Code. The Transactional Auditor has identified few of the transactions under Sections 43, 45, 66 and 50 of the IBC, 2016. Before, the Transactional Auditor submit his report, the Resolution Professional as a Company Secretary sort your suggestions on how the following "Transactions" be divided under four separate categories viz., (a) Preferential Transactions (b) Undervalued Transactions (c) Fraudulent Transactions and (d) Extortionate Transactions, based on the above information. List of transactions (assume that these transactions are carried within the timelines specified under the Code): Payment to unsecured family loans during the look back period, while the debt of secured creditors is outstanding. Payment of old operational creditors (other than regular business payments against supply of goods or services), while the debt of secured creditors or unsecured financial creditors are outstanding. Payment to an Unsecured Financial Creditor, may be as per pre-fixed loan instalments, while the debt of secured creditors is still outstanding. Sale of fancy and expensive cars owned by the Corporate Debtor to related parties or unrelated parties at a value which is much less than the market value of the car. Six months before initiation of Corporate Insolvency Resolution Process, the Managing Director has availed a private finance of ₹ 5 Crore from his relative at the interest rate of 60% p.a. and repayable within 5 years. Payment to those creditors who have security of post-dated cheques signed by the directors. Payment of old tax dues where there exists a risk of prosecution without any order from a court or authority. Transfer of good franchisees to another person at a value which is much lower than the actual value. Transfer of shares of subsidiary companies where the business is lucrative at a price which is less than the actual value. Corporate Debtor had bought new Machinery worth ₹ 2 Crore, just one year before initiation of Corporate Insolvency Resolution Process (CIRP), the Chairman of the Company, in order to protect the machinery being part of CIRP, transferred the same to a Company in which majority stake is held by his brother's son for a value of ₹ 50 Lakh payable in 2 instalments. Write the transaction and then identify the category of each of the transaction.