4 Critical Questions Relating to Avoidance Transactions in Voluntary Liquidation


The law relating to voluntary liquidation has been moved from the Companies Act, 2013 (or erstwhile Companies Act, 1956) to Insolvency and Bankruptcy Code, 2016 (Code or IBC). Voluntary liquidation is the option available to solvent corporate persons having committed no default. The voluntary liquidation, interalia, requires a special resolution of the members of the company and approval of such resolution by the creditors representing two-thirds in value of the debt of the company within seven days of special resolution.

Liquidation Commencement Date 

The Adjudicating Authority is not involved at this stage of voluntary liquidation and with no order of liquidation necessary, the date of passing of special resolution by the members of the company is considered as the liquidation commencement date[1]. The Adjudicating Authority comes into picture after the affairs of the company have been completely wound up when the liquidator is under an obligation to make an application to the Adjudicating Authority for dissolution of the company[2]. The voluntary liquidator may, however, approach the Adjudicating Authority during the liquidation process in case of non-cooperation of personnel of the company or for determination of any question of law or fact.

Applicability of Section 35 to 53 of Liquidation Process

For conducting the voluntary liquidation, no separate process has been provided in the Code. The Code provides for adoption of liquidation process from sections 35 to 53 with such modifications as may be necessary[3]. Equally the provision of cooperation of personnel of the company provided in CIRP process apply to voluntary liquidation process[4]. The liquidation process chapter contains sections from 33 to 53. Section 33 provides for initiation of liquidation of a corporate debtor which has undergone the process of Corporate Insolvency Resolution Process (CIRP). Section 34 provides for appointment of the liquidator and fee to be paid. Logically these two sections have no applicability to the voluntary liquidation process as no order of Adjudicating Authority is required and the fee of voluntary liquidator gets decided by the members appointing the liquidator. But rest of them apply with necessary modifications.

4 Critical Questions Remaining Unanswered relating to Avoidance Transactions

So far so good but applicability of sections 43 to 51 dealing with avoidance transactions leaves following 4 questions unanswered: –

  1. Is it incumbent upon the voluntary liquidator to identify and determine the avoidance transactions and make application to the Adjudicating Authority?  
  2. If yes, what will be the starting point of look back period?
  3. Is it possible to dissolve the company while avoidance applications are pending for adjudication?
  4. What will be the treatment of any recoveries made out of avoidance transactions?

First Question: Is it incumbent upon the voluntary liquidator to identify and determine the avoidance transactions and make application to the Adjudicating Authority?  

Plain reading of section 59(6) with conjunctive reading of avoidance transactions sections from sections 43 to 51 suggests that it is incumbent upon the liquidator appointed for voluntary liquidation to form an opinion and make a determination to identify the transactions under sections 43, 45, 49 and 50 of the Code. The use of the word liquidator in avoidance transaction sections includes the liquidator appointed for voluntary liquidation and hence the liquidator is under a duty to determine the avoidance transactions and file appropriate applications before the Adjudicating Authority. A crucial question relates to payment of fee of forensic auditor, if appointed by the liquidator. Who pays it? Can the liquidator claim it as part of liquidation cost? The answer to this pertinent question depends on negotiated fee of the voluntary liquidator. No separate fee can be charged if the liquidator has not factored it in the negotiated fee. In other words, if negotiated fee provides for separate payment to be made for this effort, then it may be charged, else the voluntary liquidator will have to bear expenses of this effort out of his/her fee.

Second Question: If yes, what will be the starting point of look back period?

This question has no straight answer and it calls for application of interpretation rules. All the relevant sections dealing with avoidance transactions, namely, sections 43, 45, 49 and 50 provide the starting point of look back period as insolvency commencement date. In voluntary liquidation, there is no insolvency commencement date as it is not a consequential step arising out of CIRP process. The voluntary liquidation, as we are aware, is meant for solvent companies with no default and hence there is no question of CIRP process. The look back period for avoidance transactions is as under:

SectionNature of TransactionLook Back Period for non- related party transactionsLook Back Period for related party transactions
43Preferential Transaction1 year prior to insolvency commencement date2 years prior to insolvency commencement date
45Undervalued Transaction1 year prior to insolvency commencement date2 years prior to insolvency commencement date
49Transactions defrauding creditorsNo look back periodNo look back period
50Extortionate Credit Transactions2 years prior to insolvency commencement date2 years prior to insolvency commencement date

In all cases of avoidance transactions, the look back period is to be determined with reference to insolvency commencement date. In CIRP process and possible consequential liquidation of the corporate debtor, there is an insolvency commencement date and it can be the reference point.  But for the purposes of voluntary liquidation, insolvency commencement date is irrelevant as it is not a process arising out of or as a result of CIRP process.

Literal application and construction of these avoidance transaction provisions in the context of voluntary liquidation is leading to absurdity. The literal construction has, thus, to be eschewed and the phrase insolvency commencement date has to be construed in accordance with the context. The text and context must match. Here being a mismatch, the interpretation is necessary. We need to apply golden rule of interpretation. When literal interpretation leads to an irrational result that is unlikely to be the legislature’s intention, a departure can be made from literal meaning. A preferred meaning can be chosen. 

In voluntary liquidation, there is non-existence of insolvency commencement date. There exists only the liquidation commencement date. Hence, insolvency commencement date should be read as liquidation commencement date for the purposes of construing look back period and for determination of avoidance transactions in voluntary liquidation process. This interpretation gets strength from Section 59(6) which makes provisions of sections 35 to 53 of liquidation process applicable to voluntary liquidation with such modifications as may be necessary. Replacement of insolvency commencement date with liquidation commencement date for the purpose of construing look back period for avoidance transactions partakes the character of ‘necessary modification’ being reasonable, judicious and rational . Even the purposive approach of interpretation can be applied. The purpose of determining avoidance transactions is to provide equitable treatment to the creditors as provided in section 53 of the Code. The transactions carried out by the erstwhile management are put under the lens. From the insolvency commencement date, it the insolvency professional who takes control of the management and affairs of the company. Prior to the insolvency commencement date, the company remains under the control of erstwhile management and it is imperative to identify avoidance transactions. Hence the cut-off date for look back period is the insolvency commencement date. In voluntary liquidation, the liquidator assumes control over the company and its assets from the liquidation commencement date. Prior to this date, it is the management of the company which remains in charge of the affairs of the company and the possibility of avoidance transactions cannot be ruled out.  To conclude, in voluntary liquidation, the cut off date for look period would be liquidation commencement date instead of insolvency commencement date.

Base upon the interpretation, the look back period for avoidance transactions under voluntary liquidation should be considered as follows:

SectionNature of TransactionLook Back Period for non- related party transactionsLook Back Period for related party transactions
43Preferential Transaction1 year prior to liquidation commencement date2 years prior to liquidation commencement date
45Undervalued Transaction1 year prior to liquidation commencement date2 years prior to liquidation commencement date
49Transactions defrauding creditorsNo look back periodNo look back period
50Extortionate Credit Transactions2 years prior to liquidation commencement date2 years prior to liquidation commencement date

Third Question – Is it possible to dissolve the company while avoidance application/s is/are pending for adjudication?

In the context of liquidation process, this question is easy to answer. Regulation 44(1) of the Liquidation Regulations reads as under: 

“The liquidator shall liquidate the corporate debtor within a period of one year from the liquidation commencement date, notwithstanding pendency of any application for avoidance of transactions under Chapter III of Part II of the Code, before the Adjudicating Authority or any action thereof.”

Conjunct reading of Regulation 44(1) of the Liquidation Regulations with Form H, where details of pending avoidance application are to be stated, it can be concluded that regardless of pendency of the applications for avoidance transactions, the company can be dissolved by the Adjudicating Authority after completing all other activities under liquidation.

One is persuaded to apply the same rational to voluntary liquidation and arrive at the same conclusion. Before it is done, let us consider Regulation 38(b)(iii) of Voluntary Liquidation Regulations, which reads as under: 

“38 (1) On completion of the liquidation process, the liquidator shall prepare the Final Report consisting of – 

xxxxx

(iii) No litigation is pending against the corporate person or sufficient provision has been made to meet the obligations arising from any pending litigation.”

xxxxx  

This Regulation has caused confusion as in the final report, the liquidator has to make an affirmative statement that no litigation is pending. If avoidance application is pending for adjudication, the liquidator cannot make this kind of affirmative statement as pending avoidance application is in the nature of a pending litigation. The Bankruptcy Law Reforms Committee Report, which happens to be the genesis of the Code, dealt with distribution of realization made on account of avoidance transactions. It is useful to reproduce relevant portion of Para 5.5.7:

“The Committee recommends that all transactions up to a certain period of time prior to the application of the IRP (referred to as the “look-back period”) should be scrutinized for any evidence of such transactions by the relevant Insolvency Professional. The relevant period will be specified in regulations. At any time within the resolution period (or during the Liquidation period if the entity is liquidated) the relevant Insolvency Professional is responsible for verifying that reported transactions are valid and central to the running of the business. There should be stricter scrutiny for transactions of fraudulent preference or transfer to related parties, for which the “look back period” should be specified in regulations to be longer.

The Code will give the Liquidator the power to file cases for recovery. Some jurisdictions set such recoveries aside for payment to the secured creditors. Given the extent of equity financing in India, all recoveries from such transactions will become the property of the trust, and will be distributed as described within the waterfall of liabilities.”

The BLRC recommended formation of trust for recoveries made through vulnerable transactions (termed as avoidance transactions in the Code). The BLRC preferred providing discretion power to the Adjudicating Authority to close liquidation case inspite of the fact that application for recovery from the vulnerable transactions is pending. Relevant extract of Para 5.5.10 from BLRC Report is reproduced hereunder: 

“The Liquidator may apply to the Adjudicator to close down the case with estimates of the time to recovery and possible value of recovery from the vulnerable transactions. If the Adjudicator rules in favour of the application, an order to close the Liquidation case will be issued. This will trigger a set of accompanying orders as follows:

1. An order to the relevant registration authority to remove the name of the entity from its register.

2. An order releasing the Liquidator from the case.

3. An order to submit all records related to the case to the Regulator.

If the Adjudicator does not rule in favour of the application, the Liquidation case remains open. The Code permits the Liquidator to apply for the closure again after a reasonable period of time has passed.”

Coupled with the recommendation of the BLRC and the provisions contained in Liquidation Regulations, it can be safely concluded that the principle applicable for liquidation can be applied in voluntary liquidation cases. There is no justification as to why a different treatment should be afforded in case of voluntary liquidation. In so far as Regulation 38(1)(ii) is concerned, the liquidator can mention in Final Report that no litigation is pending except application for avoidance transactions. It is left to the discretion of Adjudicating Authority to decide whether to close the liquidation or to keep it open till the final decision in these applications is made.

Fourth Question: What will be the treatment of any recoveries made out of avoidance transactions?

This aspect has not been dealt in by the Code or the Regulations framed thereunder. However, relying upon the suggestions of the BLRC (relevant extract reproduced hereinabove), it is judicious to distribute the recoveries made in accordance with the distribution waterfall under section 53 of the Code.

Epilogue

The conclusion to each question has been stated hereinabove adopting interpretative approach. It is fair to expect a suitable amendment in the Code and Regulations framed thereunder to set at rest any doubt and interpretative difficulties that are likely to arise amongst the benches of the Tribunal and Appellate forums while dealing with these pertinent questions. 


[1] Section 59(5) read with section 5(17) of the Insolvency and Bankruptcy Code, 2016 

[2] Section 59(7) of the Insolvency and Bankruptcy Code, 2016 

[3] Section 59(6) of the Insolvency and Bankruptcy Code, 2016 

[4] Section 19(3) of the Insolvency and Bankruptcy Code, 2016 

More Hits than Misses – Critical Analysis of India’s Insolvency & Bankruptcy Ordinance, 2018

Second Ordinance in Six Months

The Indian Insolvency law is shedding its infancy sooner than expected. In a span of little over six months, the President has promulgated the second Ordinance brining sweeping changes in the Insolvency and Bankruptcy Code, 2016 (Code). It can be argued that the Government is responsive to the needs of the time, but some look at it as a result of poor drafting in the original law. Regardless of the reason, it looks like the Government is taking the emerging misperceptions seriously. The upshot of the Code is that the limited liability business entities are forced to make sweeping changes in their business dealings with the creditors. They can no longer afford to ignore their timely payments. Financial discipline is here to stay. The second Ordinance has its roots in Insolvency Law Committee Report, 2018.

Immediate Commencement of the Provisions

As expected of any Ordinance, this one also comes into force immediately, that is, from 6thJune, 2018. But the question that begs answer is whether the Government and the Regulator are ready with the consequent amendments in Rules and Regulations? The most likely answer is ‘No’. The Insolvency and Bankruptcy Board of India (Board or Regulator) and the Central Government would work on the Regulations after the promulgation of the Ordinance as they are not supposed to know its contents beforehand.  This means that it will be some time before we see amended rules or regulations to be notified. Practically speaking, the provisions requiring amendment in Rules and Regulations would remain on paper unless supported by the Rules or Regulations.

Home buyers are Financial Creditors

Bringing home buyers under the umbrella of financial creditor was a long-standing demand of the society. In few cases, the debt owed to them forms a majority, yet they were relegated to the fringe by the Code. To strike a balance, they are now considered as a financial creditor under S. 5(8)(f); the amount paid by a home buyer is now deemed as the amount having the commercial effect of borrowing. The impact of this amendment is far reaching and the home buyers now, being a financial creditor, get a right to be a part of committee of creditors albeit through a representative who will be the insolvency professional appointed by the NCLT. How many of us know that proposal to include home buyers in financial creditor was dissented to by three committee members of Insolvency Law Committee? Like home buyers, there are many creditors who are neither operational creditors nor financial creditors. Ordinance has not offered any solutions for them. Amending the definition of operational creditors to mean “creditors other than financial creditors” would solve the problem. This, it seems, has to wait.

Assets of Personal and Corporate Guarantors are outside Moratorium

 Conflicting judgments of NCLT Benches, NCLAT and Allahabad High Court have been set to rest and rightly so by an amendment placing the assets of personal and corporate guarantors outside the purview of moratorium. Corporate insolvency resolution process cannot be allowed to disturb the contractual arrangement between the lender and the surety. The personal and corporate guarantors need to fend themselves without taking a shelter of moratorium under the Code.

Related Party and Relatives

The Ordinance now defines ‘related party in relation to an individual’for the purposes of corporate insolvency resolution process. It is extensive and is meant to control the conflict of interest of individuals associated with corporate insolvency resolution process. Surprisingly, the definition contains the phrase ‘spouse’ but does not define it. Interestingly, Companies Amendment Bill 2008 also contained this phrase in the definition of relative but was omitted from the next version of Bill. The Explanation defines relative for the purposes of ‘related party in relation to an individual’. This may confound the confusion as relative is defined for the purposes of newly added clause (24A) in S. 5 but the term relative for the purposes of clause (24) – related party in relation to a corporate debtor has no definition. Having not been defined, one will rely on its definition in the Companies Act, 2013 by virtue of S. 3(37). This may lead to a dichotomous situation – same phrase having two different meanings under the Code. This calls for super amendment now.

Correcting the Drafting errors

The Ordinance corrects many drafting errors in the Code. Supreme Court laid down the law that in S. 8, the word ‘and’ should be read as ‘or’ for the corporate debtor to bring to the notice of the operational creditor the existence of dispute or record of pendency of suit or arbitration proceedings in response to demand notice. The Ordinance seeks to correct this error. Similarly, the Ordinance corrects the situation by making a bank certificate optional for filing of application by an operational creditor.

Special Resolution made mandatory for initiation of corporate insolvency resolution process by Corporate Debtor

No longer corporate debtors would be permitted to file for their corporate insolvency resolution process on the basis of board resolution. Filing of such application now requires a special resolution by a company or three-fourth of the total number of partners of LLP. While adding this requirement, the Government missed an opportunity to correct drafting error in clause (b) of S. 10(3) which reads as “the information relating to the resolution professional proposed to be appointed as an interim resolution professional”. It should actually read as “the information relating to the insolvency professional proposed to be appointed as an interim resolution professional”.

 Lowering of the Decision-Making Threshold in Committee of Creditors

In the Code, the decisions of the committee of creditors were to be made by a majority of 75%. It stands changed as follows:

 

Decision Voting Percentage in Committee of creditors Prior to the amendment Voting Percentage in Committee of creditors after the amendment
Extension of period of corporate insolvency resolution process 75 66
Withdrawal of application for corporate insolvency resolution process It was not allowed 90
Replacement of Resolution Professional 75 66
Actions under section 28 75 66
Approval of Resolution Plan 75 66
Decision of the Committee of creditors to liquidate 75 66
All other decisions 75 51

Lower threshold limit means the critical decisions such as approval of resolution plan, change of resolution professional, will now have a greater chance of getting through the committee of creditors. This may have been done to hear more success stories under the Code.

Interim Resolution Professional to continue after 30 days

 The Interim Resolution Professional will now hold office until the date of appointment of the resolution professional under section 22 and not until 30 days from the date of his appointment as per the provisions of Code. Similarly, the resolution professional shall continue to manage the operations of the corporate debtor after the expiry of corporate insolvency resolution process until an order is passed by NCLT approving or rejecting the resolution plan, provide the resolution plan has been submitted. These provisions correct the situation of uncertainty prevailing under the Code.

Interim Resolution Professional is responsible for all statutory compliances

A reigning doubt in the minds of the Interim Resolution Professionals has been set to rest by the Ordinance clearly mandating that the Interim Resolution Professional shall be responsible for complying with the requirements under any law on behalf of the corporate debtor.

Banks or FI’s holding shares in corporate debtor are no longer excluded from representation etc in committee of creditors

Banks or Financial Institutions, even though they were financial creditors, had no right of representation, participation and voting in the committee of creditors if they held more than twenty percent of voting rights. This led to an anomalous situation, which has now been corrected with the addition of a proviso in S. 21(2) providing that financial creditors regulated by a financial sector regulator shall not be excluded from representation, participation and voting in the committee of creditors merely because of the fact that their debt was converted into equity prior to insolvency commencement date.

Unwilling Interim Resolution Professional not to be continued as Resolution professional

The Interim Resolution Professional, if not willing, cannot be forced to continue as a Resolution Professional now as the Ordinance makes it mandatory to have the consent of Interim Resolution Professional before being appointed as resolution professional. Infact, consent of insolvency professionals to act as Interim Resolution Professional, Resolution professional or liquidator is a mandatory condition under the Code.

Implementation of Resolution Plan

 The Code had a gaping hole as to implementation of a resolution plan. The Ordinance makes it mandatory for NCLT to satisfy itself as to the provisions in the resolution plan for effective implementation. The onus to approve necessary approvals under any law has been fixed on the resolution applicant. These approvals will have to be obtained within a period of one year from the date of approval of the resolution plan by NCLT.

Accepted Claims can also be Appealed

The Ordinance has sorted out another anomaly in the Code by providing that claims accepted by the Liquidator can also be appealed. Earlier, only rejected claims could be appealed. This amendment was not really necessary as acceptance of lower amount of claim by liquidator was in fact a ‘rejection’ of the remaining amount and an appeal could lie for the partial rejection.

NCLT to exercise Jurisdiction in cases of Insolvency Resolution or Liquidation of Corporate Guarantors to a corporate debtor

In addition to the personal guarantors, the Ordinance now mandates that the insolvency resolution process or liquidation of a corporate guarantor to a corporate debtor shall be dealt by the bench of NCLT where the corporate insolvency resolution process or liquidation of the corporate debtor is under process. This is regardless of the location of the registered office of the corporate guarantor. Ordinarily, under the Code, the jurisdiction of NCLT Bench is decided by the situation of registered office of the corporate person but in case of corporate guarantor, it will be subject to the jurisdiction of the NCLT Bench dealing with the corporate insolvency resolution process or liquidation of the corporate debtor. Here, corporate guarantor means a corporate personwho is the surety in a contract of guarantee to a corporate debtor. Corporate guarantor will include company as well as limited liability partnership. The change also indicates that if the corporate insolvency resolution process or liquidation proceedings of a corporate guarantor is in process, having commenced prior in time to that of corporate debtor, such cases shall stand transferred to the NCLT bench dealing with corporate insolvency resolution process or liquidation of the corporate debtor.

Bar on Jurisdiction of Civil Courts

The Ordinance has extended the bar on jurisdiction of civil courts over the action taken in pursuance of orders passed by the Boardunder the Code. The Board is empowered to pass orders under several circumstances under the Code. Now, no such order can be questioned in a civil court. Earlier only orders of adjudicating authority were covered.

Limitation Act applies to the Code

 The Ordinance settles the dust over the applicability of law of limitation. Henceforth, no creditor with time barred debts can approach NCLT for initiating the corporate insolvency resolution process against the corporate person. This effectively nullifies the judgments of NCLAT which first held that law of limitation cannot apply to proceedings before modifying it to a substantial extent in a later judgment, which is under a stay by the Supreme Court. Now that case becomes infructuous.

Relief to Micro, Small and Medium Enterprises

 The Central Government has been delegated the power to determine the applicability of the provisions of the Code to micro, small and medium enterprises. The big relief also comes into the form of removing disqualification to act as a resolution applicant in two circumstances, namely, clause (c) and (g) of Section 29A. Further, if a person was convicted for any offence punishable with imprisonment for two years or more, he was not eligible to be a resolution applicant. Offences were not restricted to specific laws. The Ordinance has now added the Twelfth Schedule giving a list of 25 Acts, the offences of which shall make a person ineligible to act as a resolution applicant.

Transfer of Winding-up proceedings to the Tribunal

 Interestingly a proviso has been added in section 434 of the Companies Act, 2013 to provide that proceedings relating to winding-up of companies pending before High Court or any other Court prior to commencement of the Code can be directed to be transferred by such Court to the NCLT on an application made by any party to the proceedings. Such transferred proceedings shall be treated as an application for corporate insolvency resolution process under the Code. This provision may trigger transfer of winding-up cases from High Courts to NCLT.

The language employed is, however, confusing and may lead to unintended results. Firstly, it is not clear whether the intent is to transfer applications pending consideration of the Court whether to pass winding-up order or not, or to all cases including those where winding-up has been ordered or provisional liquidator has been appointed. The language suggests all cases including where winding-up is under process can be transferred.

Secondly, all such transferred cases will assume the status of application for initiation of corporate insolvency resolution process. It is not clear how the cases where winding-up is under process and substantially advanced be treated as application for initiation of corporate insolvency resolution process.

Thirdly, winding-up under the Companies Act, 1956 and 2013 was possible on many grounds including inability to pay debts. The Code has omitted only ‘inability to pay debts’ as a ground of winding-up from the Companies Act but not others. Inability to pay dents has been included in the Code broadly classifying it as ‘default’. The corporate insolvency resolution process is triggered on occurrence of default and not on any other ground. If a winding-up was pending before the High Court due to ‘other ground’ on the date of commencement of the Code, its transfer to the NCLT and treating it as a case of corporate insolvency resolution process defies reasoning and logic.

The confusion, it seems will be settled by the Courts. The agony of poor drafting, however, continues. Intriguingly, the Insolvency Law Committee did not deal with this aspect. It only suggested to amend section 434 of the Companies Act, 2013 by amending paragraph 34 of schedule XI of the Code to state that if a petition for winding up on the grounds of inability to pay debts is pending and an order for winding up of the company has been made or a provisional liquidator has been appointed, the leave of the court hearing the winding up proceeding must be obtained, if applicable, for initiation of the CIRP proceedings against such corporate debtor under the Code. The intent and content seem to be at variance. Law will take its own interpretational course.

Conclusion

The Ordinance was the need of the hour and irons out the blunt edges of the Code, which caused confusion amongst insolvency professionals and legal fraternity. The benches of NCLT, NCLAT and Supreme Courts were also at variance with each other, passing diametrically opposite judgments on some aspects. Making similar conceptual changes in Part III can be regarded as a missed opportunity. The experience of corporate insolvency resolution process is here and that could have been applied to the provisions of individual and partnership insolvency resolution and bankruptcy. It seems we will see another Ordinance after the commencement of Part III of the Code. But like it or hate it, insolvency law is here to stay. The full colour of the provisions of the Code is yet to be seen by the corporate persons, promoters, directors and insolvency professionals. One thing is clear, ignorance of this law will hit the debtors very hard.

© Ashish Makhija: ashish@ashishmakhija.com

Disclaimer: The views expressed here are views based on my personal interpretation for academic purposes alone and should not be deemed as legal or professional advise on the subject. If relied upon, the author does not take any responsibility for any liability or non-compliance.

# Key Issues under IBC – Should IRP/RP consider interest while verifying and admitting the claims of creditors?

As regards financial creditors, the IRP/RP should take into account the interest claimed as per the terms of the loan agreement including penal interest, if any upto the insolvency commencement date.

For operational creditors, ordinarily the interest is not considered unless it is claimed by the operational creditor or other creditor and it is stated in purchase or work order. In other words, claim will be admitted to the extent there was agreement between the parties to charge and pay interest. If there is no agreement, merely the fact that it is mentioned in the invoice does not entitle the operational creditor to that interest. Interest has to be taken into account excluding the credit period as per the agreement or customary practice of the trade or usage having the force of law.

To conclude, no thumb rule can be established for providing and calculating the interest in claims by operational and other creditors; it depends on the facts and circumstances of each case.

Disclaimer: The views expressed here are views based on my personal interpretation for academic purposes alone and should not be deemed as legal or professional advise on the subject. If relied upon, the author does not take any responsibility for any liability or non-compliance.