Going concern sale in liquidation approved with clean slate transfer, extinguished excluded claims and incidental share capital reliefs.

A going concern sale of a corporate debtor in liquidation may be approved together with consequential reliefs needed to make the transaction workable and preserve the business as an operating entity. On payment of the final consideration, the acquirers are to receive rights, title and interest in the corporate debtor free and clear of prior security interests, with claims outside the statement of claims treated as extinguished and distribution of proceeds governed by the liquidation waterfall. Incidental reliefs including cancellation of existing share capital and issuance of shares to the acquirers may also be granted where necessary to effectuate the transfer.

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Issues: (i) Whether the proposed going concern sale of the corporate debtor in liquidation, along with the requested reliefs and concessions, deserved approval; (ii) Whether upon payment of the final consideration the acquirers would obtain the corporate debtor free from prior claims, liabilities and security interests; (iii) Whether cancellation of existing share capital and issuance and allotment of shares to the acquirers could be permitted as incidental reliefs.

Issue (i): Whether the proposed going concern sale of the corporate debtor in liquidation, along with the requested reliefs and concessions, deserved approval.

Analysis: The application was moved under section 60(5) of the Insolvency and Bankruptcy Code, 2016 in the course of liquidation, where the liquidator had invited bids for sale of the corporate debtor as a going concern under the liquidation regulations. The successful bidder sought approval of the acquisition plan and the ancillary directions required to make the acquisition workable. The Tribunal treated the proposed transaction as one intended to preserve the corporate debtor as an operating entity and to maximize value in liquidation.

Conclusion: The going concern sale and the necessary supporting reliefs were approved.

Issue (ii): Whether upon payment of the final consideration the acquirers would obtain the corporate debtor free from prior claims, liabilities and security interests.

Analysis: The Tribunal directed deposit of the balance sale consideration in the liquidation account in accordance with Regulation 41 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. It further held that on payment of the final consideration, the acquirers would be deemed to receive rights, title and interest in the corporate debtor, including assets, properties, contracts and approvals, free and clear of all security interests. The sale proceeds were to be distributed in accordance with section 53 of the Code, and claims not forming part of the statement of claims were declared extinguished.

Conclusion: The acquirers were granted the corporate debtor on a clean slate basis free from prior security interests and excluded claims.

Issue (iii): Whether cancellation of existing share capital and issuance and allotment of shares to the acquirers could be permitted as incidental reliefs.

Analysis: The Tribunal noted that the requested incidental measures were essential to effectuate the transfer of the corporate debtor as a going concern. It therefore accepted the reliefs relating to cancellation and extinguishment of the existing share capital, issuance and allotment of shares to the acquirers, and related intimation filings with authorities.

Conclusion: The incidental reliefs concerning share capital cancellation and allotment of shares were allowed.

Final Conclusion: The application was granted so as to enable transfer of the corporate debtor as a going concern with consequential reliefs necessary for implementation of the acquisition plan.

Ratio Decidendi: In a liquidation sale of a corporate debtor as a going concern, the Tribunal may approve the transaction and grant consequential reliefs necessary to effectuate transfer on a clean slate basis, including extinguishment of excluded claims and protection against prior security interests.

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