What changes when a creditor applies, and what management should and should not do. General legal information only.
On receiving a demand notice or application
- Respond within the time allowed and record any dispute with documents.
- Check limitation and whether the debt is genuinely due.
- Consider whether a settlement can be reached before admission.
After admission
- A moratorium bars suits and recovery proceedings against the company.
- The board’s powers are suspended and an interim resolution professional manages the company.
- Directors and managers must cooperate and provide information and records.
Conduct to avoid
The Code looks back at transactions that defrauded creditors, were undervalued, preferential or extortionate, and at fraudulent or wrongful trading. Moving assets or favouring creditors in the run-up to insolvency can lead to adverse orders and personal consequences.
Promoters and plan applicants
Section 29A bars certain persons, including some who are connected with defaulting companies, from submitting resolution plans. Eligibility should be checked early.
Personal guarantors
Promoters who have given personal guarantees may face separate proceedings under the Code’s provisions on personal guarantors to corporate debtors.
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Important disclaimer: This article is general legal information, not legal advice. It does not create a lawyer-client relationship and is not an advertisement or solicitation under Bar Council of India rules. Verify current statutes, rules and judgments before relying on it.
