The Insolvency and Bankruptcy Board of India (IBBI), the regulator for overseeing insolvency proceedings in India recently come up with a detailed document showing the alert for avoidance transactions within the insolvency process. When a person or a business is in a state of financial distress and unable to pay their debts are called insolvency.
In line with Insolvency and bankruptcy code, avoidance transaction means whenever someone is asserted as insolvent, certain transactions are undertaken during the process of insolvency or perhaps before that are avoided to overturn their effects on the finances of the corporate debtor.
According to the Insolvency and bankruptcy code, the Resolution professional and liquidators are responsible for determining whether the corporate debtor is subjected to avoidance transactions or not. Resolution professional is an insolvency professional responsible for conducting the corporate insolvency resolution process. They are registered with Insolvency and Bankruptcy Board of India and involved in the process of dissolution and resolution of an insolvent. The liquidator also a professional appointed to carry out the winding-up process of a company due to insolvency. A Recently issued document clearly defines the potential red flags for detecting the avoidance transactions.
The Major factors listed out in the 22-page document includes the following:
• One of the important potential red flag indicators is that the predominance of cash transactions
• Frequent changes of auditors and Independence of directors and are among the potential red flags
• The need to seem at whether the corporate debtor is present at the address that’s given within the corporate affairs ministry records
• The non-existence of an office of the corporate debtor at such an address is also a red flag
The red flag will help the insolvency professional to find out the avoidance transaction subjected to the corporate debtor. These findings facilitate the insolvency professional to proceed further. By introducing the detailed document of potential red flags will allow the professionals involved in the process of insolvency to co-ordinate and control the process efficiently and effectively. IBBI is the responsible authority to regulate activities of entities like Insolvency Professional Agencies (IPA), Insolvency Professionals (IP) and Information Utilities (IU) in India.
