HG & Co, a Partnership firm is currently facing the brunt of cash liquidity and is suffering to repay its debts. This has eventually resulted in initiating an Insolvency Resolution Process against the said partnershi

CS Professional · Insolvency - Law and Practice · PYQS · December 2024
HG & Co, a Partnership firm is currently facing the brunt of cash liquidity and is suffering to repay its debts. This has eventually resulted in initiating an Insolvency Resolution Process against the said partnership firm wherein H and G are partners of the firm. Following is the financial position of the HG & Co as at 31st March, 2024. Liabilities Amount (₹) Assets Amount (₹) Partners' Fixed Capital 1,00,000 Vehicles (Two Tempo Vans) 13,00,000 UIB Bank Working Capital Loan (Secured by 2 Tempos owned by the Firm) 10,00,000 Stocks (but only 50% is realizable) 6,00,000 Unsecured Overdraft from UIB Bank 5,00,000 Sundry Debtors (but only 75% is realizable) 4,00,000 Trade payables (10 Creditors) 10,00,000 Partners' Current Account 3,00,000 Following is the additional information: (i) Out of list of Creditors submitted by the Resolution Professional, one of the creditors is GH Works Private Limited from whom ₹3,50,000 is due. It is observed that Mr. G holds 30% shareholding and H holds 25% shareholding in GH Works Private Limited. (ii) In the said list prepared by the Resolution Professional, the name of one of the creditors, K for ₹1,00,000, has not been included in the list of Creditors as the proof of claim was not provided. (iii) 2 Tempos owned by the Firms is provided as security for the working capital loan obtained by the Firm. (iv) As per the list prepared by the Resolution Professional, ₹24,00,000 is the total debt payable to 10 Creditors including UIB Bank which has provided working capital loan and unsecured overdraft. The Resolution Professional has prepared a repayment plan with the following "Terms". (a) Continuation of business operations of HG & Co by the Resolution Professional in his name. (b) Sale of Stocks for the repayment to the creditors. In the light of the above information, answer the following questions stating the relevant provisions of the IBC, 2016. Discuss whether the 'Terms' as prepared by the Resolution Professional as above is valid in law?

Answer & Explanation:

Section 105(2) of the Insolvency and Bankruptcy Code, 2016, provides that the repayment plan may authorize or require the Resolution Professional to: (a) carry on the debtor's business or trade on his behalf or in his name; or (b) realize the assets of the debtor; or (c) administer or dispose of any funds of the debtor. Accordingly, continuing of business operations of HG & Co by the Resolution Professional in his name is not correct, and the Resolution Professional can carry on the business of the debtor only on behalf of the Debtor and not in his name. Sale of Stocks for the repayment to the Creditors is allowed as the stock is an asset which can be realized.

Topics: Insolvency Resolution Process for Individuals and Partnership Firms

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