Insolvency and Restructuring Law
This section covers insolvency and restructuring law. The exam tests bankruptcy, civil rehabilitation, corporate reorganization, special liquidation, and creditor priorities.
Core rules
- Bankruptcy liquidates the debtor's assets for distribution. A trustee is appointed; the court stays individual enforcement; claims are filed and ranked.
- Civil rehabilitation restructures a business, often with the debtor in possession, and binds creditors by a confirmed plan. Corporate reorganization is for larger companies and separates secured creditors and shareholders under a plan.
- Special liquidation is a court-supervised winding-up under the Companies Act. Avoidance powers can recover preferential or fraudulent transfers.
- Directors may face liability for insolvent trading or failure to file. Priority rules matter: secured claims, wages, taxes, and unsecured claims.
Worked example
A company faces a large judgment and cannot pay debts. It files civil rehabilitation, proposing reduced payments over five years. The filing triggers a stay, so a creditor cannot enforce a mortgage without court permission. Creditors vote on the plan; if confirmed, it binds dissenting unsecured creditors. A secured creditor may be treated separately.
Traps
Do not confuse rehabilitation with liquidation. Do not assume all claims are stayed automatically; secured rights and setoff have rules. Do not ignore avoidance of preferences. Do not overlook director duties near insolvency.