50 VALUATION EXAMINATION MCQS 1 MARK CASE STUDIES FOR PLANT & MACHINERY WITH ANSWERS FOR PRACTICE
WITH A FOCUS ON 1 MARK CASE STUDIES
General Overview of Plant and Machinery in Insolvency
1. What is the primary purpose of the liquidation process under IBC for plant and machinery?
A) To ensure the machinery is retained by the debtor
B) To maximize the value of plant and machinery for creditors
C) To return the plant and machinery to the manufacturer
D) To write off the plant and machinery value
Answer: B) To maximize the value of plant and machinery for creditors
2. Which of the following is an example of an asset in insolvency proceedings related to plant and machinery?
A) Stocks and bonds
B) Manufacturing equipment
C) Shares in subsidiaries
D) Intellectual property
Answer: B) Manufacturing equipment
3. Who determines the value of plant and machinery during insolvency proceedings?
A) The resolution professional
B) The creditors’ committee
C) The corporate debtor
D) The NCLT
Answer: A) The resolution professional
4. Which of the following would be classified as a secured creditor regarding plant and machinery?
A) An unsecured creditor with no interest in machinery
B) A bank with a lien on the machinery
C) An employee who has a claim for unpaid wages
D) A supplier of raw materials
Answer: B) A bank with a lien on the machinery
5. During the insolvency process, how is the plant and machinery typically handled?
A) It is left unused until the insolvency is resolved
B) It is sold to the highest bidder to pay creditors
C) It is returned to the original manufacturer
D) It is maintained by the resolution professional
Answer: B) It is sold to the highest bidder to pay creditors
6. Which of the following is NOT a part of the plant and machinery category?
A) Industrial robots
B) Office furniture
C) Excavators
D) Assembly line equipment
Answer: B) Office furniture
Sale of Plant and Machinery During Insolvency
7. Under IBC, who approves the sale of plant and machinery during the liquidation process?
A) The corporate debtor
B) The creditors’ committee
C) The NCLT
D) The resolution professional
Answer: C) The NCLT
8. What happens if plant and machinery are sold but the proceeds do not fully cover the secured creditors’ claims?
A) The remaining debt is written off
B) The remaining debt is paid from other assets
C) The creditors receive only the proceeds from the sale
D) The sale is reversed
Answer: B) The remaining debt is paid from other assets
9. Who determines the reserve price for the sale of plant and machinery under liquidation?
A) The NCLT
B) The creditors’ committee
C) The resolution professional
D) The corporate debtor
Answer: C) The resolution professional
10. In case of a sale of plant and machinery, who is responsible for ensuring that the machinery is operational for sale purposes?
A) The corporate debtor
B) The resolution professional
C) The NCLT
D) The creditors’ committee
Answer: B) The resolution professional
11. What is the process of selling plant and machinery in a distressed company under the IBC?
A) It can be sold only after court approval
B) It must be sold in bulk to one buyer
C) It is sold through an auction or private sale
D) The sale is postponed until a buyer is found
Answer: C) It is sold through an auction or private sale
12. What happens if there is no bidder for the plant and machinery during liquidation?
A) The machinery is returned to the debtor
B) The sale is canceled
C) The machinery may be disposed of at a lower price or scrapped
D) The machinery is not sold
Answer: C) The machinery may be disposed of at a lower price or scrapped
Plant and Machinery and Secured Creditors
13. What happens if a secured creditor holds a lien over the plant and machinery during insolvency proceedings?
A) The creditor can liquidate the machinery independently
B) The creditor’s claims are settled before other creditors
C) The creditor must sell the machinery through the NCLT
D) The creditor loses the right to sell the machinery
Answer: B) The creditor’s claims are settled before other creditors
14. If a bank has a charge on plant and machinery, which of the following happens in liquidation?
A) The plant and machinery can be sold to pay the bank’s debt
B) The bank cannot claim any proceeds from the sale
C) The machinery is exempt from sale
D) The bank has no priority in claims over the machinery
Answer: A) The plant and machinery can be sold to pay the bank’s debt
15. Which of the following best describes a secured creditor’s right over plant and machinery under the IBC?
A) Secured creditors have no right to the plant and machinery
B) Secured creditors can claim proceeds from the sale of the plant and machinery
C) Secured creditors can only claim after unsecured creditors
D) Secured creditors can seize the plant and machinery from the debtor’s premises
Answer: B) Secured creditors can claim proceeds from the sale of the plant and machinery
16. What happens if the plant and machinery are leased out by the debtor to a third party?
A) The third party can continue using the machinery
B) The lease agreement automatically terminates upon insolvency
C) The machinery cannot be sold
D) The lease agreement is ignored in the insolvency process
Answer: B) The lease agreement automatically terminates upon insolvency
Impact of Plant and Machinery on Insolvency Resolution Process
17. In the Corporate Insolvency Resolution Process (CIRP), who is responsible for managing the plant and machinery?
A) The NCLT
B) The creditors’ committee
C) The resolution professional
D) The corporate debtor
Answer: C) The resolution professional
18. During the CIRP, if the plant and machinery are crucial for the debtor’s business operations, what is the resolution professional likely to do?
A) Sell the machinery immediately
B) Preserve the machinery for potential operational recovery
C) Rent the machinery to a third party
D) Destroy the machinery to reduce asset value
Answer: B) Preserve the machinery for potential operational recovery
19. What is the role of the creditors’ committee in deciding on the future use of plant and machinery in insolvency?
A) They can recommend selling the machinery immediately
B) They make recommendations regarding the continuation of operations
C) They assess the value of the machinery for distribution of proceeds
D) They appoint a buyer for the machinery
Answer: B) They make recommendations regarding the continuation of operations
20. Which of the following options is NOT a responsibility of the resolution professional with respect to plant and machinery during CIRP?
A) Ensuring proper maintenance of machinery
B) Facilitating the sale of plant and machinery
C) Deciding on the most profitable usage of machinery
D) Converting machinery into raw materials
Answer: D) Converting machinery into raw materials
Disputes and Challenges Involving Plant and Machinery
21. If there is a dispute regarding ownership of plant and machinery during insolvency, what is the most likely course of action?
A) The machinery is sold without resolution of the dispute
B) The dispute is resolved by the NCLT before the sale
C) The machinery is returned to the debtor
D) The dispute is ignored in the liquidation process
Answer: B) The dispute is resolved by the NCLT before the sale
22. What should the resolution professional do if the plant and machinery are subject to a claim from a third party?
A) Ignore the claim and proceed with the sale
B) Resolve the claim through court procedures before selling the machinery
C) Disregard the claim as the machinery is owned by the debtor
D) Transfer the claim to the creditors’ committee
Answer: B) Resolve the claim through court procedures before selling the machinery
23. If a buyer purchases plant and machinery during the liquidation process but later claims the title was not transferred properly, who resolves the dispute?
A) The NCLT
B) The resolution professional
C) The creditors’ committee
D) The buyer and seller resolve it privately
Answer: A) The NCLT
24. What happens if the buyer of plant and machinery later discovers that the machinery was encumbered during the sale?
A) The buyer is entitled to a full refund
B) The buyer can file a claim with the creditors’ committee
C) The buyer is responsible for clearing the encumbrances
D) The sale is canceled
Answer: C) The buyer is responsible for clearing the encumbrances
25. If plant and machinery are found to be inoperable during insolvency proceedings, what is the best course of action for the resolution professional?
A) Scrap the machinery immediately
B) Sell the machinery at its reduced value
C) Repair the machinery before attempting to sell it
D) Return the machinery to the debtor
Answer: B) Sell the machinery at its reduced value
Plant and Machinery in Liquidation
26. If the plant and machinery of a corporate debtor are sold during liquidation, who decides the terms and conditions of the sale?
A) The creditors’ committee
B) The resolution professional
C) The NCLT
D) The corporate debtor
Answer: B) The resolution professional
27. What is the legal implication if plant and machinery are sold below their market value in the liquidation process?
A) The sale is invalid and must be canceled
B) The sale proceeds will be distributed according to the market value
C) The sale proceeds must still be distributed as per the terms of the liquidation process
D) The sale can only be approved by the NCLT
Answer: C) The sale proceeds must still be distributed as per the terms of the liquidation process
28. Which of the following is an essential consideration when selling plant and machinery during liquidation?
A) Only the value of the machinery
B) The state of the machinery (whether operational or non-operational)
C) The sale is conducted at a fixed price
D) Only the physical location of the machinery
Answer: B) The state of the machinery (whether operational or non-operational)
29. In liquidation, if the plant and machinery are mortgaged, who gets the first claim on the sale proceeds?
A) The creditors’ committee
B) The secured creditors
C) The unsecured creditors
D) The employees
Answer: B) The secured creditors
30. When plant and machinery are sold during liquidation, what should be done with any existing warranties or guarantees?
A) They are automatically void
B) They remain valid and are transferred to the buyer
C) They must be renegotiated with the manufacturer
D) The buyer must assume responsibility for them
Answer: B) They remain valid and are transferred to the buyer
31. What is the process for selling plant and machinery during liquidation if there are no bidders in the auction?
A) The assets are returned to the debtor
B) The machinery is re-auctioned at a lower price
C) The resolution professional disposes of the assets at a loss
D) The machinery is kept for future liquidation
Answer: B) The machinery is re-auctioned at a lower price
32. In liquidation, if the machinery is obsolete, how should it be treated?
A) The machinery must be scrapped or sold for scrap value
B) It should be retained until it appreciates in value
C) It must be sold at full market value
D) It is excluded from the liquidation process
Answer: A) The machinery must be scrapped or sold for scrap value
Handling Secured Claims on Plant and Machinery
33. If plant and machinery are subject to a lien by a secured creditor, what is the priority of this claim in liquidation?
A) The secured creditor gets paid after unsecured creditors
B) The secured creditor gets paid first from the sale proceeds
C) The secured creditor does not have priority over any other creditors
D) The secured creditor can only claim a portion of the sale proceeds
Answer: B) The secured creditor gets paid first from the sale proceeds
34. In a liquidation scenario, if the plant and machinery are subject to a charge that was not disclosed, what action can the resolution professional take?
A) The sale proceeds are immediately distributed to creditors
B) The sale is voided and a new auction is conducted
C) The resolution professional investigates and resolves the claim before proceeding with the sale
D) The plant and machinery are excluded from the liquidation process
Answer: C) The resolution professional investigates and resolves the claim before proceeding with the sale
35. Which of the following describes the status of a secured creditor’s claim if plant and machinery are sold but the proceeds fall short of the secured debt?
A) The secured creditor loses the entire amount
B) The secured creditor is entitled to claim the difference from the debtor’s other assets
C) The unsecured creditors must share the sale proceeds with the secured creditor
D) The debtor is excused from paying the remaining debt
Answer: B) The secured creditor is entitled to claim the difference from the debtor’s other assets
36. If a secured creditor wishes to sell the plant and machinery during the insolvency process, who must approve the sale?
A) The corporate debtor
B) The creditors’ committee
C) The NCLT
D) The resolution professional
Answer: C) The NCLT
Valuation of Plant and Machinery in Insolvency
37. How is the valuation of plant and machinery typically determined during the liquidation process under IBC?
A) Based on the historical cost of the machinery
B) Based on a third-party independent valuation
C) Based on the tax value of the machinery
D) Based on the valuation by the corporate debtor
Answer: B) Based on a third-party independent valuation
38. What is considered when valuing plant and machinery during insolvency?
A) The original purchase cost of the equipment
B) The potential market demand and resale value
C) The depreciation of the machinery
D) All of the above
Answer: D) All of the above
39. Who is responsible for engaging a professional to carry out the valuation of plant and machinery in a liquidation process?
A) The corporate debtor
B) The creditors’ committee
C) The resolution professional
D) The NCLT
Answer: C) The resolution professional
40. What should the resolution professional do if the value of the plant and machinery is significantly lower than expected?
A) Sell the machinery at the estimated market value
B) Delay the sale until the value increases
C) Continue with the sale process as planned
D) Reassess the liquidation strategy and adjust accordingly
Answer: D) Reassess the liquidation strategy and adjust accordingly
41. What happens if a plant or machinery is sold for a value higher than its appraised valuation in liquidation?
A) The difference in proceeds is distributed to the unsecured creditors
B) The higher proceeds go entirely to the secured creditors
C) The proceeds are split among all creditors based on their claims
D) The debtor receives the difference
Answer: C) The proceeds are split among all creditors based on their claims
Practical Considerations in the Sale of Plant and Machinery
42. If plant and machinery are sold to a related party in the liquidation process, which of the following must occur?
A) The sale is void and cannot proceed
B) The sale must be approved by the creditors’ committee and NCLT
C) The sale proceeds are split between the debtor and the creditors
D) The related party is exempt from paying market value
Answer: B) The sale must be approved by the creditors’ committee and NCLT
43. Which of the following actions is most likely to increase the sale value of plant and machinery during liquidation?
A) Keeping the machinery idle until the auction
B) Refurbishing and repairing the machinery to improve its functionality
C) Selling the machinery as scrap
D) Selling it to the original manufacturer at a fixed price
Answer: B) Refurbishing and repairing the machinery to improve its functionality
44. What happens to the plant and machinery if there is no market demand for the asset during insolvency proceedings?
A) The machinery is retained by the debtor
B) The machinery is scrapped or disposed of at a significant loss
C) The machinery remains unused until a buyer is found
D) The NCLT decides the future of the machinery
Answer: B) The machinery is scrapped or disposed of at a significant loss
Challenges in Selling Plant and Machinery
45. What is the potential challenge when selling specialized plant and machinery during insolvency?
A) There may be limited buyers interested in the asset
B) The machinery may need to be reassembled before sale
C) The machinery can only be sold locally
D) The asset is likely to appreciate in value during insolvency
Answer: A) There may be limited buyers interested in the asset
46. In the case of plant and machinery that are highly specialized, what must the resolution professional do to ensure the machinery is sold at the highest value?
A) Sell it at the current market price
B) Focus on selling it to the original equipment manufacturer
C) Identify niche buyers with specific needs for the machinery
D) Sell the machinery to the creditors directly
Answer: C) Identify niche buyers with specific needs for the machinery
47. What should the resolution professional do if there is a dispute over the ownership of the plant and machinery during liquidation?
A) Continue with the sale and resolve the issue later
B) Delay the sale of the machinery until the ownership dispute is resolved
C) Sell the machinery at a discounted price
D) Ignore the dispute and proceed with the sale
Answer: B) Delay the sale of the machinery until the ownership dispute is resolved
48. What is a possible consequence if the plant and machinery are sold without proper environmental clearances in place?
A) The sale is automatically voided
B) The buyer may face environmental penalties
C) The machinery is sold at a lower value to account for the environmental issue
D) The environmental clearance is the responsibility of the buyer
Answer: B) The buyer may face environmental penalties
Plant and Machinery and the Corporate Insolvency Resolution Process (CIRP)
49. If plant and machinery are deemed essential for the business operations of the debtor, what may the resolution professional do during CIRP?
A) Sell the machinery immediately
B) Preserve the machinery and explore opportunities for operational recovery
C) Scrape the machinery to pay for creditors
D) Give the machinery back to the debtor
Answer: B) Preserve the machinery and explore opportunities for operational recovery
50. During the Corporate Insolvency Resolution Process (CIRP), how is plant and machinery treated if it is needed for continuing operations?
A) It is sold immediately to pay off creditors
B) It is sold at the discretion of the debtor
C) It is retained to keep the business operational, pending the resolution plan
D) It is returned to the manufacturer for credit
Answer: C) It is retained to keep the business operational, pending the resolution plan
