Section 54J of IBC : Section 54J: Vesting Management Of Corporate Debtor With Resolution Professional

Explanation using Example

Imagine a company, XYZ Pvt. Ltd., is undergoing a pre-packaged insolvency resolution process. The committee of creditors (CoC), which is composed of the company's largest lenders, are closely monitoring the process. They start to suspect that the current management is not handling the company's affairs properly and might be engaging in fraudulent activities or gross mismanagement.

The CoC convenes and, after a detailed discussion, decides to take action. They hold a vote and 70% of the voting shares, which is more than the required 66%, agree to vest the management of XYZ Pvt. Ltd. with the resolution professional, an independent entity appointed to administer the insolvency process. The resolution professional then files an application to the Adjudicating Authority, which is the court overseeing the insolvency proceedings, to take over the management.

Upon reviewing the application and considering the evidence presented, the Adjudicating Authority agrees with the CoC's concerns. It finds that there is sufficient reason to believe that the company's affairs have been mismanaged. Consequently, the Authority issues an order that officially vests the management of XYZ Pvt. Ltd. with the resolution professional, effectively removing the current management from their duties.

From the date of this order, the resolution professional assumes control over the company's operations, and the various sections of the Insolvency and Bankruptcy Code mentioned in the act, such as sections related to moratorium, management takeover, and duties of the resolution professional, become applicable to XYZ Pvt. Ltd. This arrangement will continue until the pre-packaged insolvency resolution process is completed or a different resolution is reached.