Treatment of Lease Transactions under Insolvency and Bankruptcy proceedings
– Devika Agrawal and Anshit Aggrawal, Executive (resolution@vinodkothari.com)
The determination of the nature of debt has been one of the primary tasks before a Resolution Professional/ Liquidator, and also for the stakeholders. The classification of debt is an important consideration since there exist only two types of debt under the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “Code”), i.e., Operational Debt and Financial Debt, each with a significant set of rights and powers.
At the outset, one may think that the identification is a fairly simple job – loans and alike are financial debts, whereas those relating to supply of goods and services are operational in nature. Then, where does the confusion lie? The question of determination gains much importance for not-so-simple arrangements like lease transactions, which sit on the fence of being a financial transaction, and accordingly, the determination of financial versus operational nature will lead to consequent difference in rights and obligations.
In this article, the authors analyse the interface between the Code and lease transactions, and discuss the treatment of the leased assets or lease agreements/ transactions under the Code.