Claims on dubious IBC deals hit $4 tn

The IBC requires resolution professionals to review transactions of the corporate debtor during the statutory look-back period and approach the National Company Law Tribunal (NCLT) for recovery from preferential, undervalued, fraudulent or extortionate (PUFE) transactions, said Surendra Raj Gang, partner, deals — debt & special situations at Grant Thornton Bharat LLP.

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PUFE transactions include fund diversions.

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“Such transactions by erstwhile promoters and directors of the bankrupt business can be seen as one of the primary causes of its financial distress. Besides, companies are more prone to such transactions during the pre-bankruptcy period of financial distress,” said Gang.

PUFE deals include fund diversions, alienating assets at a significantly lower value, preferring to repay certain creditors over others just before bankruptcy, and entering into financial arrangements with harsh repayment conditions.