[Explainer] Resolution Plan Under IBC: Major Decisions

"The 'I&B Code' defines 'Resolution Plan' as a plan for insolvency resolution of the 'Corporate Debtor' as a going concern. It does not spell out the shape, colour and texture of 'Resolution Plan', which is left to imagination of stakeholders. Read with long title of the 'I&B Code', functionally, the 'Resolution Plan' must resolve insolvency (rescue a failing, but viable business); should maximise the value of assets of the 'Corporate Debtor', and should promote entrepreneurship, availability of credit, and balance the interests of all the stakeholders - Binani Industries Limited Vs Bank of Baroda & Anr. (NCLAT) (14th November, 2018) Since the Code has come into effect, there have been several resolution plans which have been challenged before the NCLT, NCLAT and Supreme Court on various grounds. This article is an attempt to list out the various the objections/challenges which were raised before the Tribunals and the Supreme Court and their observations on the same. What is Resolution Plan? As defined under Section 5(26) of the Code, Resolution plan basically is a plan which is proposed by a resolution applicant for insolvency resolution of the corporate debtor as a going concern. What are the mandatory content of the Resolution Plan? Mandatory content of the Resolution Plan is given under Regulation 38 of the CIRP Regulations, 2016. Prior to the amendment which came into force on October 5, 2018, Regulation 38 mandated the following requirements: a. identification of specific sources of funds that will be used to pay the insolvency resolution process costs, (b) liquidation value due to operational creditors and provide for such payment in priority to any financial creditor which shall in any event be made before the expiry of thirty days after the approval of a resolution plan by the Adjudicating Authority; and (c) liquidation value due to dissenting financial creditors and provide that such payment is made before any recoveries are made by the financial creditors who voted in favour of the resolution plan. However, post amendment, Regulation 38 makes the following contents of the resolution plan mandatory: (a) The amount due to the operational creditors under a resolution plan shall be given priority in payment over financial creditors. (1-A) A resolution plan shall include a statement as to how it has dealt with the interests of all stakeholders, including financial creditors and operational creditors, of the corporate debtor. Other features in Resolution Plan Vishal Ghisulal Jain v. Renoir Management Consulting (India) Private Limited: NCLT: Mumbai: 31st January 2020 a. Status of workmen (if any) and compliance with respect to labour laws. b. the suspended Board of directors shall stand dissolved and the directors of the corporate debtor immediately prior to the completion date, shall be deemed to have resigned and shall vacate their office. c. Persons nominated in the plan shall be appointed as the directors of the corporate debtor. Further, Resolution Applicant shall do necessary compliance with MCA and other concerned and applicable authorities as per applicable laws. c. There could be an appointment of a monitoring agency to manage the day to day affairs of the corporate debtor under its supervision, until the full hand over of assets of the corporate debtor including business records. d. If there are reliefs and concessions from sought from any Regulatory Authority to implement the plan, the Adjudicating Authority, however in such case, does not have the authority and the relevant authorities may be approached to consider such reliefs as per relevant applicable laws. e. The Adjudicating Authority cannot bestow any general power to any resolution applicant absolving him of liability of the corporate debtor company without knowing about the liability against which such exemption is sought. In other words, reliefs/exemptions from only existing liabilities which are specifically identified can be sought and allowed in the Resolution Plan. What is the duty of the Resolution Applicant while presenting the Resolution Plan? As per Regulation 39(1) of CIRP Regulations, 2016, the Resolution Applicant ought to submit the resolution plan as per the Code and Regulations within the time given in the invitation made under Section 25(2)(h) of the Code. The ineligibility of a Resolution Applicant is dealt in Arcelor Mittal (SC) wherein it was observed that if the condition under Section 29A of the Code is fulfilled, the ineligibility can be removed and plans can be placed before the CoC. What is the duty of the Resolution Professional? Before the resolution plan is presented to Committee of Creditors, it is the duty of the Resolution Professional to place only those resolution plans which are Code compliant and are not in contravention of any law. As per Section 30(2) of...

[Explainer] Resolution Plan Under IBC: Major Decisions

Amrita Sarkar

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