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Ramalingam Kalirajan |10881 Answers |Ask -Follow

Mutual Funds, Financial Planning Expert - Answered on Jun 03, 2024

Ramalingam Kalirajan has over 23 years of experience in mutual funds and financial planning.
He has an MBA in finance from the University of Madras and is a certified financial planner.
He is the director and chief financial planner at Holistic Investment, a Chennai-based firm that offers financial planning and wealth management advice.... more

Question by Sayak on Jun 03, 2024Hindi

Does a director of insolvent company can sell his property during insolvency proceedings.

Ans: The ability of a director of an insolvent company to sell personal property during insolvency proceedings is governed by specific legal frameworks. Here's a detailed explanation of the relevant considerations and legal context in India.

Understanding Insolvency Proceedings
Insolvency proceedings are designed to manage the debts of an insolvent company. During these proceedings, the company's assets and operations are under scrutiny to repay creditors.

Legal Framework in India
In India, the Insolvency and Bankruptcy Code (IBC), 2016, governs insolvency proceedings. The IBC provides a structured and time-bound process for insolvency resolution.

Director's Role During Insolvency
Once insolvency proceedings are initiated, the role of the company's directors is significantly restricted. The management of the company typically shifts to an Insolvency Resolution Professional (IRP) or a Resolution Professional (RP).

Personal Property of Directors
Directors can retain their personal property separate from the company's assets. The insolvency proceedings focus on the assets and liabilities of the company, not the personal assets of its directors.

Selling Personal Property
Legal Ownership: Directors can sell their personal property during insolvency proceedings, provided it is legally their own and not connected to the company's assets.

Restrictions: While directors have the right to sell their personal property, they must ensure that the sale does not infringe on any legal obligations or create a perception of asset stripping related to the company’s insolvency.

Disclosure: Any significant transactions may require disclosure, especially if there is any potential conflict of interest or suspicion of diverting funds from the company.

Implications for Creditors
Creditors may scrutinize personal transactions of directors to ensure that no company assets are being unlawfully diverted. If any transaction is found to be improper, it could be challenged in court.

Best Practices for Directors
Legal Advice: Directors should seek legal advice before selling any personal property during insolvency proceedings to ensure compliance with legal and ethical standards.

Transparency: Maintaining transparency in all transactions helps avoid legal complications and demonstrates good faith to creditors and stakeholders.

Avoid Conflicts: Ensure that personal transactions do not conflict with the company’s insolvency proceedings or the interests of creditors.

Conclusion
While directors of an insolvent company can sell their personal property during insolvency proceedings, they must do so cautiously, ensuring compliance with legal requirements and maintaining transparency to avoid any potential conflicts or legal challenges.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

DISCLAIMER: The content of this post by the expert is the personal view of the rediffGURU. Users are advised to pursue the information provided by the rediffGURU only as a source of information to be as a point of reference and to rely on their own judgement when making a decision.