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IIBF Resolution of Stressed Assets study materials
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IIBF Resolution of Stressed Assets practice questions

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Question 1Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

Under the Insolvency and Bankruptcy Code, 2016, which adjudicating authority has jurisdiction over insolvency resolution of a corporate debtor such as a company or an LLP?

  1. The Debt Recovery Tribunal
  2. The Board of Industrial and Financial Reconstruction
  3. The High Court exercising original civil jurisdiction
  4. The National Company Law Tribunal Correct answer.

Explanation

Section 60 vests corporate insolvency resolution and liquidation of corporate persons in the National Company Law Tribunal, with appeals lying to the National Company Law Appellate Tribunal. Debt Recovery Tribunals handle individuals and partnership firms, not companies.

Question 2Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

What is the outer time limit, including any extension, for completing the corporate insolvency resolution process from the date of admission of the application?

  1. 270 days
  2. 330 days Correct answer.
  3. 180 days
  4. 365 days

Explanation

Section 12 permits completion within 180 days, extendable by the NCLT by a further 90 days on the resolution professional's application. The total permissible period is therefore 330 days, and the Supreme Court has held this to be mandatory subject only to the Covid-era relaxations.

Question 3Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

A financial creditor wants to trigger corporate insolvency resolution against a defaulting company. What is the minimum amount of default that must exist for the application to be maintainable?

  1. One crore rupees Correct answer.
  2. Five crore rupees
  3. One lakh rupees
  4. Ten lakh rupees

Explanation

Section 4 sets the threshold for initiating insolvency proceedings at one crore rupees, as amended in 2020. Defaults below this amount cannot found an application before the NCLT under section 7 or section 9.

Question 4Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

Which of the following persons is expressly barred by section 29A from submitting a resolution plan for a corporate debtor?

  1. A foreign portfolio investor holding less than five per cent equity
  2. A financial institution regulated by the Reserve Bank of India
  3. An operational creditor whose dues are fully paid
  4. A person who is a promoter of the corporate debtor and is classified as a wilful defaulter Correct answer.

Explanation

Section 29A disqualifies persons connected with the management of a wilful defaulter, as well as promoters of the corporate debtor, from submitting resolution plans. The bar aims to prevent the erstwhile promoters from buying back the asset at a discount.

Question 5Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

On admission of a corporate insolvency resolution application, what is the immediate legal effect on the corporate debtor under section 14?

  1. All contracts to which the debtor is party stand terminated
  2. Ownership of the debtor's assets vests in the resolution professional
  3. A moratorium prohibits institution or continuation of suits and transfer of assets Correct answer.
  4. The board of directors is permanently dissolved

Explanation

Section 14 imposes a moratorium that bars fresh suits, continuation of pending proceedings, enforcement of security interests and alienation of assets by the corporate debtor. It does not terminate contracts or transfer ownership; management passes to the resolution professional under section 17.

Question 6Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

Who convenes and chairs the first meeting of the committee of creditors after the resolution professional collates the claims?

  1. The resolution professional Correct answer.
  2. The insolvency professional agency
  3. The adjudicating authority
  4. The suspended board of directors

Explanation

Section 21 provides that the resolution professional shall constitute the committee of creditors and shall convene and conduct its meetings. The suspended board and the NCLT play no role in chairing that forum.

Question 7Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

What majority of votes of the committee of creditors is required for approving a resolution plan under section 30(4)?

  1. Unanimous consent of all creditors
  2. Seventy-five per cent of votes of the committee
  3. Simple majority of members present
  4. Sixty-six per cent of votes of the committee Correct answer.

Explanation

Section 30(4), as amended, requires approval by not less than sixty-six per cent of the voting share of the committee of creditors. The plan must then be placed before the NCLT for approval under section 31.

Question 8Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

Which body has been designated as the regulator of insolvency professionals, insolvency professional agencies and information utilities under the Code?

  1. Securities and Exchange Board of India
  2. Ministry of Corporate Affairs
  3. Insolvency and Bankruptcy Board of India Correct answer.
  4. Reserve Bank of India

Explanation

The Code established the Insolvency and Bankruptcy Board of India as the sectoral regulator with rule-making, registration and oversight functions over insolvency professionals, agencies and information utilities.

Question 9Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

A bank has a claim of fifty crore rupees against a corporate debtor that is undergoing insolvency resolution. Which authority does the bank approach to lodge its claim?

  1. The Debts Recovery Tribunal having jurisdiction
  2. The NCLT bench hearing the application
  3. The resolution professional appointed for the corporate debtor Correct answer.
  4. The IBBI directly through its portal

Explanation

Claims are submitted to the resolution professional, who verifies and collates them to constitute the committee of creditors. The NCLT does not adjudicate individual claims at the admission stage unless a dispute is raised.

Question 10Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

An operational creditor has supplied goods worth two crore rupees and the debt is undisputed, but the buyer has not paid for one hundred days after the due date. What must the creditor do before filing an application under section 9?

  1. File a suit for recovery and wait for decree
  2. Obtain prior consent of the committee of creditors
  3. Approach the IBBI for pre-admission mediation
  4. Serve a demand notice on the corporate debtor and wait ten days for payment or notice of dispute Correct answer.

Explanation

Section 8 requires the operational creditor to deliver a demand notice, after which the corporate debtor has ten days to pay or show existence of a pre-existing dispute. Only if neither happens can the section 9 application be filed.

Question 11Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

A resolution professional needs to keep the corporate debtor running during the CIRP but has no cash. Which source of funding is recognised by the Code, and how is it treated in the waterfall?

  1. Interim finance, which is treated as a cost of the resolution process and ranks above other claims Correct answer.
  2. Equity infusion by the suspended board, ranking as equity
  3. Interim finance, which ranks below all other claims
  4. A loan from the committee of creditors, ranking pari passu with operational debt

Explanation

Section 5(15) defines interim finance, and section 53 treats CIRP costs, including interim finance, as the first charge on the liquidation waterfall. Lenders therefore rank ahead of secured creditors for such funding.

Question 12Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

A corporate debtor has a single financial creditor holding the entire admitted claim. What is the consequence for the composition of the committee of creditors?

  1. Representatives of operational creditors are added to the committee
  2. The committee cannot be constituted and the process must be terminated
  3. The committee consists of that sole financial creditor Correct answer.
  4. The NCLT nominates an independent chairperson to the committee

Explanation

Section 21 provides that where there are no financial creditors, the committee comprises operational creditors, but where there is only one financial creditor, that creditor alone constitutes the committee. There is no minimum size requirement.

Question 13Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

A resolution plan proposes to pay secured financial creditors sixty per cent of admitted claims and operational creditors ten per cent. The committee approves it with seventy per cent votes. What must the NCLT examine before approving the plan under section 31?

  1. Whether the plan maximises value for every class equally
  2. Whether the plan provides for payment of CIRP costs and is feasible and fair to dissenting stakeholders Correct answer.
  3. Whether the plan is approved by the board of the corporate debtor
  4. Whether the promoters have consented to the plan

Explanation

Section 31 requires the NCLT to be satisfied that the plan provides for CIRP costs and is feasible and viable, and the Supreme Court has held that fair and equitable treatment of dissenting creditors must be tested. Differential treatment is permissible if justified.

Question 14Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

A financial creditor invokes personal guarantee of a promoter while the corporate debtor's CIRP is ongoing. Which statement reflects the position under the Code?

  1. The guarantee can be enforced only after liquidation of the corporate debtor
  2. The guarantee can be enforced simultaneously, as the moratorium applies only to the corporate debtor Correct answer.
  3. The guarantee is extinguished on admission of the corporate debtor's CIRP
  4. The guarantee can be enforced only with prior leave of the committee of creditors

Explanation

The Supreme Court in State Bank of India v. V. Ramakrishnan held that the section 14 moratorium does not extend to personal guarantors, whose insolvency is governed by Part III. Proceedings against guarantors may therefore proceed in parallel.

Question 15Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

An applicant files a section 7 application based on a default that occurred four years ago, and the corporate debtor raises limitation. What is the settled position?

  1. Only operational creditors are governed by limitation
  2. The period of limitation under the Limitation Act applies to applications under sections 7, 9 and 10 Correct answer.
  3. Limitation is three years and cannot be extended in any circumstance
  4. Limitation does not apply to proceedings under the Code

Explanation

The Supreme Court in B.K. Educational Services held that the Limitation Act applies to applications under the Code, with the three-year period running from the date of default. However, acknowledgment of debt can extend the period.

Question 16Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

The resolution professional discovers that the corporate debtor made a preferential transfer of assets to a related party six months before the insolvency commencement date. What remedy is available?

  1. The resolution professional may apply to the NCLT for avoidance of the preferential transaction Correct answer.
  2. The transfer is automatically void and the assets revert without any application
  3. Only the committee of creditors can challenge the transfer
  4. The transaction can be challenged only in a civil suit for fraud

Explanation

Sections 43 and 44 allow the resolution professional to apply to the adjudicating authority to avoid preferential transactions made within the look-back period, and section 45 covers undervalued transactions. The NCLT may then order restoration of the assets.

Question 17Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

A corporate debtor's resolution plan has been approved by the NCLT. A supplier whose pre-CIRP claim was not part of the plan seeks to recover its dues from the corporate debtor after approval. What is the outcome?

  1. The supplier can recover from the resolution professional personally
  2. The claim stands extinguished, as the approved plan binds all stakeholders including dissenting creditors Correct answer.
  3. The supplier can recover because it did not vote on the plan
  4. The supplier can recover only if the plan expressly reserves its claim

Explanation

Section 31 makes an approved resolution plan binding on the corporate debtor and all stakeholders, including creditors who did not vote or whose claims were not included. The Supreme Court has confirmed that such claims cannot be revived.

Question 18Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

What is the role of an information utility registered under the Code?

  1. To adjudicate insolvency disputes between creditors
  2. To conduct valuation of the corporate debtor's assets
  3. To provide interim finance to corporate debtors
  4. To store and authenticate financial information and provide evidence of default Correct answer.

Explanation

Section 3(21) defines an information utility as a person registered with the IBBI that collects and authenticates financial information of debtors. Its records serve as evidence of default before the adjudicating authority.

Question 19Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

A company classified as a micro, small or medium enterprise is a corporate debtor. Which route allows a pre-packaged insolvency resolution process?

  1. Only companies with assets above one hundred crore rupees may use pre-pack
  2. Any corporate debtor may opt for pre-pack if the committee of creditors consents
  3. Only an MSME corporate debtor may initiate a pre-packaged insolvency resolution process Correct answer.
  4. Only listed companies may use the pre-pack route

Explanation

Chapter III-A, introduced in 2021, permits a pre-packaged insolvency resolution process only for corporate debtors that are micro, small or medium enterprises. The process involves a base resolution plan prepared with the debtor's cooperation before admission.

Question 20Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

A financial creditor files an application under section 7. The corporate debtor argues that a dispute exists over the debt. How does the NCLT treat this defence compared with a section 9 application?

  1. Disputes are irrelevant in both routes
  2. A dispute defeats a section 7 application but not a section 9 application
  3. A pre-existing dispute is a ground to reject a section 9 application but is not a defence to a section 7 application based on a default Correct answer.
  4. The same pre-existing dispute test applies to both routes

Explanation

For operational creditors under section 9, the existence of a pre-existing dispute is a complete defence. For financial creditors under section 7, the adjudicating authority is concerned only with the existence of default, and a mere dispute does not bar admission.

Question 21Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

At the end of the CIRP, no resolution plan is approved within the statutory timeline. What is the consequence for the corporate debtor?

  1. The process is extended indefinitely until a plan is found
  2. The corporate debtor is automatically wound up under the Companies Act
  3. The corporate debtor returns to its promoters with all moratorium lifted immediately
  4. The NCLT passes an order for liquidation of the corporate debtor Correct answer.

Explanation

Section 33 requires the adjudicating authority to order liquidation where no plan is approved within the timeline or where the committee decides to liquidate. The liquidation process then follows Chapter III of Part II.

Question 22Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

In the liquidation waterfall under section 53, which of the following ranks immediately after CIRP costs and secured creditors?

  1. Government dues and dues of secured creditors who relinquish security
  2. Workmen's dues for the twenty-four months preceding liquidation Correct answer.
  3. Equity shareholders
  4. Financial debts of unsecured creditors

Explanation

Section 53 places workmen's dues for twenty-four months and secured creditors who have relinquished security next in priority, ahead of unsecured financial creditors. Government dues rank below unsecured financial creditors after the 2019 amendment.

Question 23Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

The committee of creditors decides to replace the existing resolution professional during the CIRP. What procedure applies?

  1. The committee can replace the resolution professional only with IBBI approval
  2. The committee may replace the resolution professional by a sixty-six per cent vote and apply to the NCLT for replacement Correct answer.
  3. The suspended board may replace the resolution professional with creditor consent
  4. The committee cannot replace the resolution professional once appointed

Explanation

Section 27 allows the committee of creditors, by a vote of sixty-six per cent, to resolve to replace the resolution professional, and the NCLT then appoints a new one. The IBBI does not approve individual replacements.

Question 24Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

A resolution plan proposes to treat a dissenting financial creditor worse than assenting creditors of the same class. What does the Code require?

  1. Dissenting creditors must receive at least the liquidation value of their claims, and the plan must be fair and equitable Correct answer.
  2. Dissenting creditors must receive the same amount as assenting creditors in every case
  3. Dissenting creditors must be paid in priority to assenting creditors of the same class as a matter of course
  4. Dissenting creditors can be paid nothing if the committee approves the plan

Explanation

Section 30(2)(b) requires that dissenting financial creditors receive not less than the liquidation value of their claims. The Supreme Court has further required fair and equitable treatment, allowing differential recovery where justified.

Question 25Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

An application under section 10 is filed by the corporate debtor itself. Which additional requirement distinguishes it from a creditor-initiated application?

  1. The corporate debtor must obtain consent of all creditors before filing
  2. The corporate debtor must propose the name of a resolution professional and file audited financial statements with the application Correct answer.
  3. The corporate debtor must be a listed company
  4. The corporate debtor must first exhaust arbitration proceedings

Explanation

Section 10 requires a corporate applicant to furnish its books of account, audited financial statements and other specified records, and to propose the name of an interim resolution professional. The NCLT must be satisfied that default has occurred.

Question 26Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

Under the Insolvency and Bankruptcy Code, 2016, what is the statutory outer limit for completing the corporate insolvency resolution process, including any extension granted by the adjudicating authority?

  1. Three hundred and thirty days from the date of admission of the application Correct answer.
  2. Two hundred and seventy days from the date of the public announcement
  3. One hundred and eighty days from the date of the default
  4. Four hundred and twenty days from the date of the demand notice

Explanation

The CIRP must ordinarily be completed within 180 days from admission, extendable by the NCLT by up to 90 days, and thereafter a further extension of up to 90 days can be granted in limited circumstances, making 330 days the outer statutory limit. The clock runs from admission of the application, not from the date of default or public announcement.

Question 27Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

Which adjudicating authority has jurisdiction over insolvency resolution and liquidation proceedings of a corporate debtor under the Code?

  1. The National Company Law Appellate Tribunal
  2. The Debt Recovery Tribunal having territorial jurisdiction
  3. The National Company Law Tribunal having territorial jurisdiction Correct answer.
  4. The High Court of the state where the registered office is situated

Explanation

Section 60 vests jurisdiction over corporate persons in the National Company Law Tribunal, which acts as the adjudicating authority for corporate insolvency resolution and liquidation. The NCLAT is only the appellate authority, while DRTs handle individual and partnership insolvency.

Question 28Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

A default by a corporate debtor for the purposes of a section 7 application means non-payment of a debt that is due and payable, and the amount involved must exceed which threshold?

  1. Ten lakh rupees
  2. Five crore rupees
  3. One crore rupees Correct answer.
  4. One lakh rupees

Explanation

The Code defines default by reference to a minimum amount notified by the Central Government, which stands at one crore rupees for applications filed on or after 24 March 2020. A financial creditor can therefore trigger CIRP only where the unpaid debt crosses this threshold.

Question 29Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

A financial creditor wants to trigger CIRP against a corporate debtor. Along with the application, what must the creditor furnish as record of the default?

  1. An affidavit from the creditor's recovery officer confirming the outstanding balance
  2. A sanction letter from the creditor's board approving the insolvency filing
  3. A record of the default with an information utility or other evidence of default Correct answer.
  4. A certificate from a statutory auditor certifying the debt as irrecoverable

Explanation

Section 7 requires the financial creditor to furnish the record of default recorded with an information utility, or such other evidence of default as may be specified. The Code does not require an irrecoverability certificate, board sanction or officer's affidavit at the admission stage.

Question 30Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

Once an application for initiation of CIRP is admitted by the adjudicating authority, what is the immediate legal effect on the corporate debtor?

  1. All contracts of the corporate debtor stand terminated with effect from the admission date
  2. The board of directors continues to manage the company under the supervision of the resolution professional
  3. The corporate debtor is automatically dissolved and its assets vest in the Central Government
  4. A moratorium takes effect prohibiting institution of suits and transfer of assets, and management vests with the resolution professional Correct answer.

Explanation

Section 14 imposes a moratorium on suits, execution proceedings, asset transfers and enforcement of security interests once the application is admitted. Section 17 then vests management of the corporate debtor with the interim resolution professional, displacing the board.

Question 31Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

Which professional body is constituted under the Code to recommend insolvency professional agencies for registration to the Board?

  1. The Insolvency Professional Agencies Federation
  2. The Insolvency Law Committee
  3. The Insolvency and Bankruptcy Board of India Correct answer.
  4. The Standing Committee on Insolvency Professionals

Explanation

The Insolvency and Bankruptcy Board of India is the regulator established under the Code and performs the function of recommending and registering insolvency professional agencies. The Insolvency Law Committee is an advisory committee, not a statutory regulator.

Question 32Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

What is the minimum number of financial creditors required to constitute a committee of creditors where the corporate debtor has financial creditors?

  1. At least three financial creditors
  2. At least five financial creditors
  3. At least ten per cent of all creditors
  4. At least one financial creditor Correct answer.

Explanation

Section 21 provides that the committee of creditors consists of all financial creditors of the corporate debtor, so even a single financial creditor constitutes the committee. There is no minimum numerical threshold of financial creditors for constituting the CoC.

Question 33Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

Under the Code, what does the term 'resolution applicant' refer to in relation to a corporate debtor undergoing CIRP?

  1. A financial creditor who votes against the resolution plan
  2. The adjudicating authority that approves the resolution plan
  3. A person who submits a resolution plan to the resolution professional for the corporate debtor Correct answer.
  4. The resolution professional appointed to manage the corporate debtor

Explanation

A resolution applicant is a person who submits a resolution plan to the resolution professional in response to the invitation for plans. The resolution professional conducts the process but is not an applicant, and the adjudicating authority only approves the plan.

Question 34Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

A resolution professional invites expressions of interest and shortlists eligible applicants. Which requirement applies to a person who wishes to submit a resolution plan for a corporate debtor?

  1. The person must be an existing shareholder of the corporate debtor
  2. The person must be found eligible under section 29A and must not be a disqualified person Correct answer.
  3. The person must be a financial institution regulated by the Reserve Bank of India
  4. The person must hold at least ten per cent of the admitted claims of the corporate debtor

Explanation

Section 29A bars certain persons, such as wilful defaulters, undischarged insolvents and promoters of defaulting entities, from submitting resolution plans. Eligibility is therefore tested against section 29A rather than against institutional or shareholding status.

Question 35Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

An insolvency professional appointed as interim resolution professional fails to obtain the required authorisation for a transaction from the committee of creditors. What is the consequence for that transaction under the Code?

  1. The transaction is void unless ratified by the adjudicating authority within thirty days
  2. The transaction is void against the adjudicating authority, and the professional may be liable for losses Correct answer.
  3. The transaction is valid because the professional acts as agent of the corporate debtor
  4. The transaction becomes valid once the resolution plan is approved

Explanation

The resolution professional exercises powers subject to authorisation by the committee of creditors for specified transactions, and acts beyond such authorisation are void against the adjudicating authority. The professional may also be liable for resulting losses under the Code.

Question 36Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

A corporate debtor has no financial creditors and the CIRP is initiated on an operational creditor's application. How is the committee of creditors dealt with in such a case?

  1. No committee is constituted, and the resolution professional performs functions subject to the adjudicating authority's directions Correct answer.
  2. The committee is constituted with the ex-promoters of the corporate debtor as members
  3. The committee is constituted with operational creditors holding at least ten per cent of the debt
  4. The committee is deemed to consist of the operational creditors who are not related parties of the corporate debtor

Explanation

Where the corporate debtor has no financial creditors, section 24 read with the regulations provides that the committee of creditors is not constituted. The resolution professional then manages the process and seeks directions from the adjudicating authority where needed.

Question 37Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

During CIRP, the resolution professional decides that a contract entered into by the corporate debtor before commencement imposes onerous obligations. What course is available under the Code?

  1. The resolution professional must continue all pre-CIRP contracts until a resolution plan is approved
  2. The resolution professional may apply to the adjudicating authority to avoid the contract if it is onerous to the corporate debtor Correct answer.
  3. The resolution professional may terminate the contract without any reference to the adjudicating authority
  4. The contract stands automatically terminated on the insolvency commencement date

Explanation

Section 14(2) preserved the supply of essential goods and services, while the Code allows the resolution professional to apply to the adjudicating authority for avoidance of onerous contracts. The professional cannot unilaterally terminate such contracts or assume automatic termination.

Question 38Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

A resolution professional identifies that the corporate debtor sold machinery to a related party at a substantial undervalue in the year preceding commencement of CIRP. Which provision of the Code addresses this?

  1. Section 66 on fraudulent trading
  2. Section 49 on the transactions to be avoided
  3. Section 45 on undervalued transactions Correct answer.
  4. Section 43 on preferential transactions

Explanation

Section 45 empowers the resolution professional to apply to the adjudicating authority where the corporate debtor has entered into a transaction at an undervalue during the look-back period. A sale at substantial undervalue to a related party falls squarely within this provision.

Question 39Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

The resolution professional wishes to initiate avoidance proceedings in respect of a transaction entered into by the corporate debtor with a related party two years before commencement. Which look-back period applies to such a transaction?

  1. Five years preceding the insolvency commencement date
  2. Two years preceding the insolvency commencement date Correct answer.
  3. One year preceding the insolvency commencement date
  4. Six months preceding the insolvency commencement date

Explanation

For undervalued and preferential transactions involving related parties, the Code prescribes a look-back period of two years preceding the insolvency commencement date. The shorter one-year period applies to transactions with unrelated persons.

Question 40Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

An operational creditor has delivered a demand notice and the corporate debtor has no genuine dispute but fails to pay. What is the corporate debtor's obligation if it wishes to avoid an operational creditor's application?

  1. It must show payment of the unpaid operational debt or tender the amount together with interest Correct answer.
  2. It must obtain a stay order from the adjudicating authority before the application is filed
  3. It must show that it has filed a suit disputing the debt before a civil court
  4. It must demonstrate that its net worth is positive in the latest audited accounts

Explanation

Section 8 requires the corporate debtor, on receipt of a demand notice, either to pay the operational debt or to show existence of a dispute or a pending suit or arbitration. Payment or tender of the amount is the surest way to defeat an operational creditor's application.

Question 41Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

A resolution plan submitted to the adjudicating authority proposes to exclude a class of stakeholders from any payment while the plan is otherwise compliant. What is the primary test the adjudicating authority applies before approval?

  1. Whether the plan has been approved by the board of the corporate debtor
  2. Whether the plan provides for full repayment of all operational debt
  3. Whether the plan has the consent of every single creditor of the corporate debtor
  4. Whether the plan maximises the value of the corporate debtor's assets and balances interests of all stakeholders Correct answer.

Explanation

The adjudicating authority examines whether the plan satisfies the requirements of section 30 and 31, including that it maximises value and balances the interests of all stakeholders. Unanimous creditor consent is not required; the commercial wisdom of the committee of creditors carries weight.

Question 42Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

A resolution plan approved by the adjudicating authority imposes a payment obligation on a guarantor of the corporate debtor. Which statement is correct regarding the guarantor's liability?

  1. The guarantor remains liable to the extent provided in the approved plan, and the creditor may pursue the guarantee Correct answer.
  2. The guarantor must be made a party to the resolution plan before any liability can arise
  3. The guarantor's liability is limited to the liquidation value of the corporate debtor
  4. The guarantor is discharged because the corporate debtor's liability is extinguished by the plan

Explanation

An approved resolution plan binds the corporate debtor and its stakeholders, and the Supreme Court has held that it may validly extend to guarantors where the plan so provides. The creditor may therefore enforce the guarantee to the extent the plan allows.

Question 43Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

A corporate debtor classified as an MSME wants to use the pre-packaged insolvency resolution process. Which additional condition must be satisfied beyond being an MSME?

  1. The corporate debtor must obtain the prior approval of the Reserve Bank of India
  2. The corporate debtor must have no operational creditors at all
  3. The corporate debtor must not have undergone a pre-packaged process in the preceding three years Correct answer.
  4. The corporate debtor must have a minimum of ten financial creditors

Explanation

Chapter III-A permits pre-packaged insolvency resolution for MSMEs subject to conditions, including that the corporate debtor has not completed a pre-packaged process in the preceding three years. The process also requires a base resolution plan from a promoter and approval of the committee of creditors.

Question 44Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

A financial creditor files a section 7 application and the corporate debtor contends that the account is merely under restructuring and no default has occurred. How does the adjudicating authority assess this objection?

  1. It must reject the application because restructuring excludes the possibility of default
  2. It must await the outcome of the creditor's recovery proceedings
  3. It must refer the dispute to arbitration before considering admission
  4. It examines whether the debt is due and payable and default has occurred, and admits the application if satisfied Correct answer.

Explanation

For a section 7 application the adjudicating authority examines the existence of a financial debt, default, and completeness of the application, and admits it if satisfied. Restructuring of an account does not by itself negate default, and the authority is not required to await other proceedings.

Question 45Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

A resolution professional needs to raise interim finance for the corporate debtor during CIRP. Which statement about interim finance is correct?

  1. Interim finance can be raised only with the prior approval of the adjudicating authority
  2. Interim finance raised with the approval of the committee of creditors ranks as CIRP cost in the waterfall Correct answer.
  3. Interim finance is treated as an operational debt of the corporate debtor
  4. Interim finance cannot be secured by any charge on the assets of the corporate debtor

Explanation

Section 28 requires the resolution professional to obtain committee approval for raising interim finance, and section 53 treats it as part of insolvency resolution process costs. Such finance may also be secured by a charge on the assets of the corporate debtor.

Question 46Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

A creditor whose claim was not submitted before the resolution professional's verification deadline approaches the professional after the committee has approved a resolution plan. What is the correct treatment of such a late claim?

  1. The claim is permanently extinguished and cannot be submitted at all
  2. The claim must be referred to the adjudicating authority for mandatory admission
  3. The claim must be admitted and the approved plan reopened for redistribution
  4. The claim may be considered by the resolution professional, but the approved plan is not disturbed Correct answer.

Explanation

Regulations allow the resolution professional to consider claims submitted after the stipulated time, but a plan already approved by the adjudicating authority is not reopened for that reason. Creditors who sleep on their rights cannot unsettle an approved resolution plan.

Question 47Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

In a CIRP where the corporate debtor has both secured and unsecured financial creditors, how is voting share of a financial creditor in the committee determined?

  1. Equally among all members of the committee irrespective of the debt
  2. In proportion to the security interest held by each creditor
  3. In proportion to the debt owed to the creditor, as admitted by the resolution professional Correct answer.
  4. According to the order in which claims were filed with the resolution professional

Explanation

Regulation 21 of the CIRP Regulations provides that the voting share of a financial creditor is proportionate to the debt owed to that creditor, based on the claims admitted by the resolution professional. The nature of security or the timing of filing does not determine voting share.

Question 48Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

A resolution applicant proposes to pay creditors using a mix of upfront cash and deferred payments linked to future profits of the corporate debtor. What principle governs acceptance of such a plan by the committee of creditors?

  1. Deferred payments are prohibited and only upfront cash plans can be approved
  2. The plan must be feasible and viable, and the committee must be satisfied that it maximises value Correct answer.
  3. The plan must provide for payment within ninety days of approval
  4. The plan must obtain the consent of the Reserve Bank of India if payments are deferred

Explanation

The committee of creditors assesses a resolution plan on parameters such as feasibility, viability and maximisation of value, as reflected in the evaluation matrix. Deferred or contingent payments are not prohibited, provided the plan demonstrates feasibility and viability.

Question 49Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

A resolution plan approved by the adjudicating authority contains a clause providing for liquidation of the corporate debtor if the applicant defaults in implementing the plan. How is such a clause treated?

  1. It is valid only if all creditors consent to the clause
  2. It is invalid because the Code does not permit a plan to provide for liquidation of the corporate debtor Correct answer.
  3. It is valid because the adjudicating authority approved the plan and the plan binds all stakeholders
  4. It is valid only if the clause is approved separately by the adjudicating authority

Explanation

A resolution plan must provide for resolution of the corporate debtor, not its liquidation, and a clause permitting liquidation on default is contrary to the scheme of the Code. The Supreme Court has held that such a clause cannot be sustained merely because the plan was approved.

Question 50Resolution of Stressed Assets through Insolvency and Bankruptcy Code 2016

A financial creditor dissents from a resolution plan that is approved by the requisite majority of the committee of creditors. What minimum entitlement does the Code secure for such a dissenting financial creditor?

  1. An amount equal to the average recovery of assenting creditors
  2. An amount equal to the full admitted claim irrespective of the plan
  3. An amount not less than the liquidation value of its claim, payable in priority over assenting creditors Correct answer.
  4. A right to veto the plan until its claim is fully settled

Explanation

Section 30(2)(b) requires the plan to provide for payment to dissenting financial creditors of not less than the liquidation value of their claims. The Code also requires such payment to be made in priority over assenting creditors, subject to the statutory scheme.