INDIA Law and Practice Contributed by: Shardul Shroff, Misha, Kritika Poddar and Aishwarya Satija, Shardul Amarchand Mangaldas & Co
4.6 The Position of Shareholders and Creditors in Restructuring, Rehabilitation and Reorganisation See 2.4 Unsecured Creditors . Equity owners or share - holders are regarded as owners of the CD and do not retain any ownership or other property on account of their ownership interests. The CoC is comprised of both secured and unsecured FCs of the CD. The voting share of each CoC mem - ber is determined in accordance with the debt due to them. Therefore, if an unsecured FC has a significant debt exposure and consequent proportionate voting share, then the vote of such an FC may play a crucial role while approving a resolution plan for the CD or liquidating the CD (which requires 66% voting share of the CoC). Other than this, unsecured creditors do not have the power to stay or defer the process. Shareholders are not included in the CoC and cannot disrupt the process. Under the Code, creditors can assign or transfer the debt due to them to any other person during the CIRP. Both parties are required to provide the terms of the assignment to the IRP or RP and the identity of the assignee and transferee. The RP notifies each party and the NCLT of any subsequent change in the CoC within two days of such change. Scheme Approval by a 75% majority of each class is required for approval of the Scheme under the CA 2013. There - fore, if unsecured creditors form a class, then such creditors can disrupt or delay the process by not pro - viding requisite approvals. 5. Statutory Insolvency and Liquidation Procedures 5.1 The Different Types of Liquidation Procedure See 1.2 Types of Insolvency (Liquidation upon failure of the CIRP or PPIRP, and Voluntary liquidation). The liquidation and voluntary liquidation procedures under the Code are only applicable for corporate
entities that are composed of companies and limited liability partnerships. 5.2 Course of the Liquidation Procedure Voluntary Liquidation See 1.2 Types of Insolvency (Voluntary liquidation). Involuntary Liquidation An involuntary liquidation process is initiated on the failure to revive the CD during a CIRP or PPIRP. Such a liquidation process is aimed at bringing the life of the CD to a lawful end when its turnaround or rehabilita - tion is not feasible in a time-bound manner. Consequences of initiation of liquidation For manner of initiation of a liquidation process and its consequences, see 1.2 Types of Insolvency (Liquida - tion upon failure of the CIRP or PPIRP). There is no automatic effect on the operation of pre- insolvency agreements of the CD by virtue of the com - mencement of liquidation proceedings against it by the NCLT. However, the liquidator is empowered to disclaim onerous property and unprofitable contracts by applying to the NCLT. Where the liquidator’s request for disclaiming property is granted by the NCLT, the CD will be released from rights and obligations in the contract or property in the manner as provided in the order of the NCLT. Any par - ties affected by such disclaimer would be deemed to be a creditor of the CD for the amount of the compen - sation or damages payable in respect of such effect. The liquidator may also apply to the NCLT to avoid certain types of transactions that may have been car - ried on as part of a contract. See 8.1 Circumstances for Setting Aside a Transaction or Transfer . Role of the liquidator, the NCLT and the CD See 1.2 Types of Insolvency (Liquidation upon failure of the CIRP or PPIRP). The liquidator is empowered to, inter alia, take into their custody and control all the assets, property, effects and actionable claims of the CD and administer them for the benefit of its creditors, members and other stakeholders.
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