By laksh5382 
IBBI Chairman Ravi Mital has suggested that a focused approach on recovery from ‘avoidance transactions’ will help creditors reduce their haircuts and conservatively add 10 per cent to their recoveries.
The CoC should review the progress of these avoidance proceedings on a monthly basis and, if necessary, create a mechanism to escalate these transactions before the Adjudication Authority (AA), Mittal said in IBBI’s latest quarterly newsletter.
Avoidance transactions undertaken by former promoters and directors are one of the primary reasons for the financial distress and sickness of corporate debtors (CDs) and ultimately entering the Insolvency and Bankruptcy Code (IBC).
In cases where avoidance transactions are approved by the AA for prosecution, creditors should approach the Ministry of Corporate Affairs (MCA) or the Insolvency and Bankruptcy Board of India (IBBI) and approach the special court under section 236 of the IBC. A criminal complaint should be filed. Set up under Chapter XXVIII of the Companies Act, 2013, Mital suggested.
By the end of September 2024, 1,326 avoidance transaction applications involving an amount of ₹3.76 lakh crore have been filed with the AA. The AA may, after consideration, order withdrawal of the amount.
Till September 2024, 338 avoidance transaction applications have been disposed of by the AA and refund of approximately ₹7,516 crore has been ordered.
There has been direct recovery of approximately ₹3.55 lakh crore from IBC due to resolution and ₹10,446 crore due to liquidation.
“With the threat of the promoter losing control over the unit, many unscrupulous promoters have tried to be street smart and misappropriated funds in various ways before entry of the unit under IBC, vigorous follow-up action to bring these back This will not only enhance recovery but will also lead to improvement. Credit discipline and act as a deterrent to adventurism,” said Hari Har Mishra, CEO, Association of ARCs in India. business Line,
Under the IBC, avoidance transactions are recognized as low-value, fraudulent or extortionate transactions by the previous promoters. Simply put, whenever an entity becomes insolvent, there are certain transactions that should be avoided under the IBC. If such transactions – preferential, undervalued, fraudulent and extortionate (PUFE) – are included, it will affect the financial position of the entity and that is why these transactions are called ‘avoidable transactions’.
The IBC requires IPs to file applications before the NCLT to detect any improper transactions before the commencement of the insolvency process and to get back the undue benefits from the wrong beneficiaries.
Avoidance transactions include preferential payments, embezzlement of receipts, misappropriation of physical assets, making an entity pay for goods and services not received by corporate debtors (payments to fictitious vendors, inflated billing, fictitious employee costs, etc. ) Are included.