Chapter-3 Inquiry into Insolvency Proceedings

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To inquire into insolvency proceedings: (1) Where the Court issues order to inquire into insolvency proceedings pursuant to Sub section (3) of Section 10, the inquiry official shall independently inquire into the financial situation of the concerned company in order to determine the following:
(a) Whether or not there should be issued an order for immediate liquidation of the company by the reason that its financial situation cannot be improved;
(b) Whether or not the period of inquiry as referred to in Section 14 should be extended;
(c) Whether or not there should be issued an order for the restructuring of the company through the restructuring program;
(c) Whether or not the company has become or is likely to become insolvent.
(2) The inquiry official shall make inquiry pursuant to Sub-section (1) and submit an inquiry report to the Court within the period specified by the Court, and such report shall contain, inter alia, the resolution, if any, adopted by the meeting of creditors, the company’s report and evaluation and recommendation made by the official.

Power to extend period of insolvency proceedings: (1)Where the inquiry officer, showing a reasonable reason why the financial situation of the company cannot be inquired into within the period of inquiry as specified pursuant to Sub-section (2) of Section 13, makes an application to the Court for the extension of that period, the Court may, if it finds the reasonable
ground , extend the period as appropriate.
(2) Where the period of inquiry is extended pursuant to Subsection (1), the information thereof shall be given to the concerned company.

Management of company during inquiry period: (1) Notwithstanding anything contained in the laws in force, the board of director of the company shall carry out the management and ordinary transactions of the company during the period of inquiry of insolvency proceedings, under the regular supervision of the inquiry official.
(2) Notwithstanding anything contained in Sub-section (1), where the inquiry officer submits to the Court a report indicating that the board of directors of the company has not operated the company properly, the Court may issue an order to remove the board of directors and order the inquiry officer to carry out the management and ordinary transactions of the company.
(3) Where the Court orders the inquiry officer to carry out the management and ordinary transactions of the company pursuant to Subsection (2), the inquiry officer shall carry out the transactions accordingly.
(4) Where any special transaction such as the sale of the assets or business of the company shall be carried out in the course of operating the ordinary business of the company pursuant to Sub-section (3), an application setting out the reason therefor shall be made to the Court for permission, and where the Court issues an order granting such permission, the inquiry officer may carry out such transaction.

Report to be made by director: A person who has held the office of director of the company at the time when the Court has issued an order to inquire into insolvency proceedings pursuant to Sub-section (3) of Section 10 or during the period of one year prior thereto, shall submit to the Court a report on the financial situation and transactions of the company as at the time of his or her retirement, in the prescribed format.

Power to raise loans: (1)Where the inquiry officer considers the need of any amount to keep on the company or operate the ordinary transactions of the company, the inquiry officer may borrow loans from any person, with or without furnishing necessary security.
(2) Any loans borrowed pursuant to Sub-section (1) shall be deemed to be the amount spent during the period of inquiry into insolvency proceedings and such amount shall be paid in order of priority as provided in this Act. Provided that where the security furnished by the company to borrow a loan has already been furnished as a security with any person, the order of priority shall not apply in relation to the claim for security except in the case where the inquiry official has made an agreement of a person entitled to claim the same.

Report to be submitted by inquiry officer : (1) The inquiry officer shall inquire into the financial and business situation of the company and submit a report thereof to the Court within the period of inquiry.
(2) The inquiry officer shall determine any one matter set forth in Sub-section (1) of Section 13 and make a recommendation report referred to in Sub-section (1) containing the reasons and grounds for such determination, and such report shall contain, inter alia, the actual financial situation of the company, details obtained by the inquiry official upon making inquiry and his or her opinion and findings.
(3) Where the recommendation made pursuant to Sub-section (2) has been submitted to the meeting of creditors, whether a majority of the creditors attending such meeting has accepted such recommendation or not shall also be mentioned.
(4) A copy of the report submitted pursuant to Sub-section (1) shall be sent to each of the concerned company and the Office; and the concerned company and the Office shall make arrangements to maintain the report so received that the shareholders, directors and creditors of the Company may inspect such report.

Ipso facto suspension: (1) Notwithstanding anything contained in the laws in force, where the Court issues order to institute insolvency proceedings in relation of any company pursuant to Sub-section (2) of Section 10, any of the following acts or actions shall not be done or taken; and any acts or actions being done or taken but not completed shall ipso facto be suspended:
(a) Transferring, selling and disposing of the shares of the company or altering the status of any shareholder;
(b) Transferring, selling and disposing of any assets of the company or mortgaging or pledging the same as collateral in any manner;
(c) Foreclosing any assets of the company or realizing any security according to any judgment or order;
(d) Preempting any property leased to the company by the lessor or instituting any legal action in relation thereto;
(e) Paying any debt whose payment was outstanding or which had become payable at the time when the court made order to institute insolvency proceedings pursuant to Sub-section (2) of Section 10 or pledging of a security in consideration thereof; and
(f) Transferring or withdrawing moneys in the fund of the company.
(2) Notwithstanding anything contained in Sub-section (1), where any person makes an application to the Court claiming that the automatic suspension of any transaction pursuant to the said Sub-section will cause a loss to that person, the Court may, if it holds that the statements of the applicant are reasonable and that this does not prejudice the interests of the company or its creditors, issue an order to do any transaction.

Prohibition on cutting down essential services: Notwithstanding anything contained in the laws in force, where the Court orders the
institution of insolvency proceedings in relation to any company pursuant to Sub-section (2) of Section 10, no institution or person providing essential services such as electricity, drinking water, drainage, gas and telephone or any other telecommunication service to such company shall stop or cut down such services during the period between the date of the said order and the date of completion of the said proceedings, except without permission of the Court.

Meeting of creditors to be convened: (1) The inquiry officer shall, before submitting his or her report to the Court, convene a meeting of the creditors of the company to discuss his or her report in order to know the views of the creditors on the future plan of the company which has become insolvent, and every person who is identified as a creditor of the company from the accounts and other records of the company shall also be invited to attend such meeting.
(2) A notice indicating the venue, date, time and agenda of the meeting shall be given to every person identified as a creditor under Subsection (1) in advance of at least seven days, and the notice shall also be published at least two times in a daily newspaper of national circulation.
(3) While giving a notice pursuant to Sub-section (2), it may be given by a letter, telex, telefax, e-mail or any other means of electronic communication which can be recorded.
(4) Where any person other than a person mentioned in Sub-section
(1) makes any claim against the company as a creditor, the inquiry official may ask that person to submit evidence thereof and detailed description of the claim against the company.
(5) The inquiry official may dismiss the claim of a person who fails to submit the evidence or description referred to in Sub-section (4); and where the claim is so dismissed, such person shall not be entitled to attend the meeting of creditors. Provided that a person shall not be considered to be a creditor of the company by the reason only that the person has taken part in the meeting of creditors.
(6) The inquiry official shall chair the meeting of creditors.
(7) The meeting of creditors shall make decision by majority. In the event of a tie, decision shall be made by lot. The inquiry official may ascertain the voting right of creditors in proportion to the claim made on the debts due to be paid immediately by or payable by the Company and specify the mode of voting.
(8) The directors of the company or the officers invited by the inquiry official may participate in the meeting of creditors. Provided that they shall not be entitled to take part in voting.
(9) Except where any concerned person makes an application to the Court showing the reasons and grounds that injustice has been done to that person, no question may be raised in any court about the meeting of creditors and the business executed by it.

Power to Court to make order: (1) The Court may, if it considers appropriate, make any of the following orders, within seven days after the receipt of the report submitted by the inquiry officer pursuant to Sub-section (1) of Section 18, the resolution adopted by the meeting of creditors or the restructuring scheme submitted by the company or any other resolution adopted:
(a) To immediately liquidate the company;
(b) To implement the restructuring program of the company;
(c) In the event of possibility of improvement without liquidating the company immediately, to stay until the period specified by the court;
(d) To extend the period of insolvency proceedings as specified by the Court for the submission of report by making further inquiry; or
(e) To quash the order issued pursuant to Sub-section (2) of Section 10.
(2) Where an order is made under Sub-section (1) to liquidate the company or implement the restructuring scheme, the Court shall make an order to appoint an insolvency practitioner as the liquidator of the company or to operate the restructuring scheme of the company and implement the liquidation or restructuring scheme of the Company; and the person so appointed shall perform such act within such period as specified by the Court at the time of his or her appointment.
(3) Notwithstanding anything contained elsewhere in this Section, where the inquiry officer makes an application for any of the following orders as per the understanding reached between any company which has become insolvent or of which situation requires its immediate liquidation or showing the reason that even though a company has become insolvent, there is a situation that the proposal on the restructuring scheme prepared for the improvement of the company can be considered in a meeting of creditors to be convened pursuant to Chapter-4, the Court may, if it considers so appropriate, make such order:
(a) To end the inquiry into insolvency proceedings before the expiry of that period;
(b) To waive the requirement to convene the meeting of creditors by the inquiry official; or
(c) To liquidate the company or carry out the restructuring of the company.
(4) Where the Court considers it reasonable to make any order other than that mentioned in Sub-section (1) or (3), it may also make such order.

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Chapter-3 Inquiry into Insolvency Proceedings

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