Q. Violation of Moratorium

Question

Whether creation of security interest over the assets of the corporate debtor after taking approval under section 28 constitutes violation of moratorium as moratorium as per section 14 prohibits encumbering any of assets of corporate debtors?

Also section 25 specifies continued business operations of corporate debtor as one of the duties of resolution professional which might involve transferring of assets (e.g. Inventory) which also remains prohibited during moratorium. Accordingly will this also constitute violation of moratorium?

If yes, then what is the purpose of enlisting it under section 28 / under section 25 as it can not be undertaken at all as Moratorium remains in force till the completion of corporate insolvency resolution process?

Answer 1

Dear Rajan,

Appreciate that you start reading and analysing the provisions very early in your professional life.

Transferring of inventory will happened against money which will increase the value of Corporate Debtor (by adding profit to the business). RP is duty bound to perform each and every activity to maximize the value of assets of Corporate Debtor and need to run the business of Corporate Debtor as going concern.

A going concern entity have more value than closed business because of Financial clunch.

Regards,
CA Rahul Gupta
E: rahul@mrt-ca.in
M: 8527180143