In a recent case, the Mumbai bench of the National Company Law Tribunal ( NCLT ) has held that only assets are transferred in a sale of the corporate debtor in liquidation as a going concern and liabilities have to be discharged as per section 53 of the Insolvency Bankruptcy Code ( IBC ), 2016..
Mr. Ravikant Modi , the applicant filed Application for seeking concessions and reliefs in relation to the assets sold as going concern Corporate Debtor. The Company Petition was filed to initiate the Corporate Insolvency Resolution Process against the Corporate Debtor i.e. Topsgrup Services and Solutions Limited under Section 7 of the Insolvency and Bankruptcy Code, 2016.
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The Corporate Debtor was admitted to CIRP. In the e-auction process, the applicant was declared as Successful Bidder and this status was confirmed via a latter issued by the liquidator wherein the applicant accepted all terms of the bid in toto.
The tribunal noted that while the Liquidation Process Regulations recognize “going concern sale” as one of the methods of sale, however, there is no definition as such for ‘going concern’ either in the Code or in the Regulations and also there is no provision in the ‘Code’ or any of the regulations with respect to the relief and concessions to be granted to a Successful Bidder in Liquidation.
It was observed that the crux of the ‘sale as a going concern’ is that the equity shareholding of the Corporate Debtor is extinguished and the acquirer takes over the undertaking with the assets, licenses, entitlements etc. The undertaking includes the business of the Corporate Debtor, assets, properties and rights etc. excluding the liabilities.
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It was held that the Corporate Debtor survives, only the ownership is transferred by the Liquidator to the purchaser. All the rights, titles and interest in the Corporate Debtor including the legal entity is transferred to the purchaser.
The bench found that as far as the ‘going concern’ sale in liquidation is concerned, there is a clear difference that only assets are transferred and the liabilities of the Corporate Debtor have to be settled in accordance with Section 53 of the Code and hence the purchaser of this asset takes over the assets without any encumbrance or charge and free from the action of the Creditors.
In the case of sale as a ‘going concern’ the Corporate Debtor will not be dissolved in terms of Section 54 of the Code. The assets with the attendant, claims, limitations, licenses, permits or business authorizations, remains in the Company. Only the ownership of the Company is acquired by the successful bidder from the Liquidator.
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The bench of Ms. Reeta Kohli ( Judicial Member ) and Ms. Madhu Sinha ( Technical Member ) directed the Liquidator to provide all support and Assistance to the Applicant for the smooth functioning of the Corporate Debtor to complete the acquisition strangely.
The Liquidator and Applicant shall be at liberty to take all the steps required to make accounting entries for the smooth transmission and clearing the balance sheet. Further directed the Liquidator to ensure completion of pending filings with the Registrar of Companies, Income Tax Authorities and any other Government / Statutory Authorities.
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