Attorneys at Law Since 1964

Issue 24 – Insights 3

Issue 24 – Insights 3

Insights – No Limited Liability = R.I.P Entrepreneurship

Order of the Tribunal

The NCLT, Mumbai while finding the case as being fit for being “admitted” u/s 10 of the Insolvency & Bankruptcy Code, 2016 also noted that the moratorium period under the insolvency resolution process was intended to be used as an effective tool in insolvency resolution. The tribunal further noted that there have been instances of it being misused by the corporate debtor to thwart the recovery proceedings.

But the most important question that was decided in this case – Whether properties /assets not owned by the Corporate Debtor (but are personal properties of the Promoters) shall come within the ambit of the moratorium period where they cannot be sold or disposed of to recover dues?

The Tribunal decided on the basis of plain reading of Section 14 of the IBC, 2016 that moratorium shall be declared to prohibit any action to recover or enforce any security by the corporate debtor in respect of ‘its’ property.

Simply put, the “no action on assets or properties” during the moratorium will apply only for asset/properties owned in the name of the corporate debtor companies. Personal properties of the promoters will not fall under the ambit of moratorium.

The NCLT order in Schweitzer India case has expressly made it possible for creditors (instead of waiting for the six-month waiting period) to go ahead and sell the promoter’s personal property, which was pledged with the banks.

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