Senior creditor priority disregarded in liquidation waterfall (Touchstone Partners)

Highlights

1.The Appellate Court for insolvency matters, the NCLAT, in its recent landmark ruling has destroyed the idea of inter-creditor seniority amongst secured creditors in the liquidation waterfall.

2.Unlike liquidation under the Companies Act, liquidation waterfall under the insolvency Code is based on the election made by the secured creditor, between enforcement outside the code or relinquishment to the liquidation estate.

3.Sub-classification amongst secured creditors is irrelevant where the secured creditor elects to relinquish its security interest.

4.Such liquidation waterfall is likely to better the position of dissenting secured financial creditors at the resolution stage as well.