Trademark as Asset in Insolvency Proceeding
In India, trademarks are considered intangible assets and form an important part of a company’s intellectual property portfolio. In the context of insolvency proceedings, trademarks are treated as assets that can be sold, assigned, or licensed to help recover debts or facilitate the restructuring of the business. The Insolvency and Bankruptcy Code, 2016 (IBC) governs insolvency proceedings in India and provides specific mechanisms for handling the trademarks of a business that is undergoing liquidation or restructuring.
Role of Trademarks in Corporate Restructuring (Under Resolution Process)
1. Trademarks as Part of the Corporate Debtor’s Assets
In an insolvency proceeding, trademarks are treated as part of the assets of the corporate debtor (the company or individual undergoing insolvency). These trademarks are often valued and sold or assigned to raise funds to pay creditors.
- Valuation of Trademarks: The Resolution Professional (RP) or Liquidator appointed under the Insolvency and Bankruptcy Code (IBC) may hire professional valuers to assess the worth of the company’s trademarks. These trademarks are then sold as part of the liquidation process if the company is not going to be restructured.
- Sale/Transfer of Trademark Rights: Under IBC, during liquidation (as per Section 33 of the IBC), the Liquidator can sell the assets of the company, including intellectual property rights such as trademarks. The trademarks can be sold outright or licensed to third parties, depending on the situation.
2. Role of Trademarks in Corporate Restructuring (Under Resolution Process)
- Corporate Insolvency Resolution Process (CIRP): If the company is undergoing a Corporate Insolvency Resolution Process (CIRP), trademarks can be retained and used as part of the company’s ongoing business operations, if the company is successfully restructured. The Committee of Creditors (CoC) may agree to the sale of these trademarks if it is seen as essential to the business’s continued operation or the company’s turnaround.
- Sale or Transfer in Resolution Plan: The Resolution Applicant (the party who proposes the resolution plan) may include the trademarks as part of the assets to be acquired as part of the restructuring. The trademarks can be transferred to the buyer or licensee as part of the resolution process if the business is sold as a going concern.
3. Impact of Insolvency on Trademark Licenses
- Trademark Licenses in Insolvency: If a company that owns trademarks has entered into a trademark licensing agreement, the treatment of that license during insolvency can be complex. Under Section 14 of the IBC, a moratorium is imposed on any actions that can affect the assets of the debtor, which includes the termination of contracts. The moratorium also prohibits the termination of any license agreements for trademarks that the debtor holds.
- Assumption or Rejection of Trademark Licenses: During CIRP, the Resolution Professional may decide to assume or reject the trademark license agreements. If the company chooses to reject the license (i.e., cancel the agreement), the licensee may lose its rights to use the trademark. This decision is typically made after evaluating the value of the license to the debtor’s ongoing business.
4. Trademarks in Liquidation
- Liquidation Process: When a company goes into liquidation, as per Section 33 of the IBC, the liquidator is tasked with selling the assets of the business, including trademarks, to pay off creditors. Trademarks are sold as intangible property and can be sold to third parties, either as individual trademarks or as part of a larger business or brand portfolio.
- Sale of Trademarks: The Liquidator may sell the trademarks directly or through a public auction, depending on the size and value of the assets involved. The sale proceeds from the trademark sale will be used to pay off creditors according to the priority established in the IBC.
5. Insolvency of the Trademark Holder (Individual or Company)
- Insolvency of Sole Proprietors or Partnerships: If a sole proprietor or partnership business owns a trademark and becomes insolvent, the trademarks will be included in the personal or partnership assets that are subject to insolvency proceedings. These assets can be sold to settle debts.
- Transferring Ownership of Trademark: If a company’s trademarks are being sold as part of a larger liquidation or restructuring process, it may involve the assignment of the trademark ownership. Such transfers must be properly recorded with the Registrar of Trademarks in India, as per the Trade Marks Act, 1999.
Key Considerations in Trademark Treatment During Insolvency
1. Validity of Trademarks During Insolvency
- Use of Trademarks: In India, trademarks must be used in commerce to maintain their validity. If a business becomes insolvent and ceases operations or suspends use of its trademarks, it risks losing trademark protection. The Resolution Professional or Liquidator may take steps to ensure that the marks are either sold, licensed, or transferred in a manner that preserves their value.
2. Secured Creditors and Trademark Rights
- Secured Creditors: If a business has secured creditors, the creditors may hold the rights to the trademarks as collateral. In the event of insolvency, these secured creditors have priority over other creditors in the liquidation process. They may take control of the trademarks and either sell or license them to recover the debt.
3. Duties of the Resolution Professional or Liquidator
- Protecting the Value of the Trademarks: One of the primary responsibilities of the Resolution Professional (RP) or Liquidator is to protect and maximize the value of the debtor’s assets, including trademarks. This involves determining whether the trademarks are useful to the debtor’s ongoing business or whether they should be sold to generate funds.
4. Impact of Insolvency on Global Trademark Protection
- If a company is involved in international business, its global trademark portfolio may also be affected by its insolvency. The insolvency proceedings in India may require coordination with other jurisdictions if the company’s trademarks are registered or used outside India.
Conclusion
In Indian insolvency proceedings, trademarks are valuable intangible assets that can be used to raise funds for creditors in a liquidation, or they can be preserved as part of a business’s restructuring in the resolution process. The Insolvency and Bankruptcy Code (IBC) provides the framework for the treatment of these assets, ensuring they are either sold, licensed, or retained based on the overall objective of maximizing value for creditors. The Resolution Professional or Liquidator plays a critical role in determining the appropriate action for the company’s trademarks, balancing the interests of the creditors, the brand’s future, and the protection of intellectual property rights.
Source: Swarupa Ghosh (Advocate, High Court), Calcutta High Court, IPINDIA, NCLT Kolkata