Retaining the independence of a subsidiary

Dear Editor,

An insolvency resolution professional (IRP) can stop a holding company from moving assets of a subsidiary that is going through a corporate insolvency resolution process because both the companies are separate legal entities. The holding company does not own the assets of the subsidiary and, in law, the management of the business of the subsidiary vests in its board of directors. Shares of the subsidiary are held as assets on the books of the parent company and can be issued as collateral for additional debt financing. It is settled law that a company is a juristic person and is distinct from the shareholders. It is the company that owns the property and not the shareholders.

Section 18 of the Insolvency and Bankruptcy Code, 2016, provides for the duties of the IRP. As per the section, the IRP shall take control and custody of any asset over which the corporate debtor has ownership rights as recorded in the balance sheet of the corporate debtor, or with the information utility or the depository of security or any other registry that records the ownership of assets. Further, while undergoing liquidation under section 36 of the code, assets as mentioned are “any assets over which the corporate debtor has ownership rights, including all rights and interests therein as evidenced in the balance sheet of the corporate debtor”.