On January 18, 2023, the Ministry of Corporate Affairs (MCA), issued a notification inviting co...
A resolution plan is a must when it comes to resolving a matter. In the corporate sector, the concept of an insolvency resolution plan was introduced under the Insolvency and Bankruptcy Code, 2016. The main objective of such a resolution plan is to resolve the problem of the corporate debtor’s insolvency, where it is unable to pay off its debts. The proposed resolution plan shall be approved by the Committee of Creditors, and it must be in compliance with the mandatory requirements of the Insolvency and Bankruptcy Code (IBC). In this article, we shall go through some various aspects of the Insolvency Resolution Plan.
A resolution applicant is a person who submits the resolution plan to a resolution professional. The resolution plans can be proposed by the creditors or the promoters of the corporate debtor. The Committee of Creditors authorizes the resolution professional to prescribe eligibility and the evaluation criteria for a resolution applicant so that only serious applicants are entertained. The IBC defines a resolution applicant as a person who individually or jointly submits a resolution plan to the resolution professional.
Section 29 A of IBC, 2016, specifies the persons who are not eligible to be a resolution applicant. It defines that a person will not be able to submit a resolution plan if that person or any other persons acting jointly with that person is:
An interim resolution professional is appointed by the National Company Law Tribunal within 14 days from the date of commencement of the insolvency. The term of the appointment of such a professional should not exceed 30 days from the date of appointment. The Insolvency professional shall manage the operation of the corporate debtor, and he shall preserve and protect the value of the property. He shall also take into custody and control the assets under the ownership of the corporate debtor. The resolution professional shall have access to the documents and records of the corporate debtor through the officer and managers of the corporate debtor. Moreover, he shall also have access to documents and records available with the government authorities, auditors etc. of the corporate debtor.
The following procedure is followed for submitting Insolvency Resolution Plan:
There are certain essentials that must be included in a resolution plan. These are mentioned below.
Also, Read: Insolvency and Bankruptcy Board of India.
Section 31 of the IBC states that if the adjudicating authority is content with the fact that the resolution plan approved by the Committee of Creditors meets the requirements specified in subsection (2) of section 30, then the adjudicating authority shall approve the resolution plan by an order that will be binding on the corporate debtor, its employees, members, guarantors, creditors and other stakeholders engaged in the resolution plan. However, it must be noted that before passing an order for the approval of an insolvency resolution plan, the adjudicating authority shall ensure that such a plan has provision for effective implementation. In case on the opinion of the adjudicating authority, the resolution plan does not satisfy the above-mentioned requirements, then it may, by an order, reject such a resolution plan.
Once the resolution plan is approved, the order passed on the moratorium by the adjudicating authority will cease to have effect, and all the records relating to the conduct of the Corporate Insolvency Resolution Process (CIRP) and the resolution plan shall be forwarded to the board by the resolution professional to be recorded in its database.
Then the resolution applicant in respect of the resolution plan approved, obtain the mandatory approval that is needed under any law in force for the time being within one year period from the date of the approval by the adjudicating officer of the resolution plan under subsection (1) or within a period as provided for in such law. If the resolution plan has a provision for combination, then the applicant of the resolution must seek the prior approval of the Competition Commission of India (CCI) before the approval of that resolution plan by the Committee of Creditors.
The resolution professional while submitting the resolution plan must ensure that proper provisions are there for payment of debts because in case the resolution plan is not approved or if it is rejected by the NCLT then the operational creditors will receive an amount that is not lower than the liquidation value of their debt or an amount that it would have received if the amount to disbursed under the resolution plan were distributed with respect to the order of priorities in section 53 of the Code. The financial creditors in the same situation who did not vote in favor of the resolution plan will get an amount that is not less than the liquidation value of their debt. This is known as the Fair and Equitable distribution under a resolution plan.
Insolvency is a state where a person or an entity is not able to pay off his debts to investors, creditors or lenders. Resolution to insolvency can be obtained through two ways-
The financial creditor can himself or jointly commences the filing of an application for insolvency proceedings before the National Company Law Tribunal (NCLT) against the corporate debtor. Along with the application, the proof of default and the name of the intended insolvency professional to be chosen must be submitted. The NCLT has the right to reject the application if it thinks that the corporate debtor does not default or in case there is any pendency of proceeding against the intended resolution professional. It is vital that the NCLT entertains such an application within 14 days since the application is made to it.
In case of an insolvency resolution process by the operational creditor, the operational creditor must serve advance notice of 10 days to the corporate debtor inquiring him about payment of pending dues prior to commencing an insolvency resolution process. In case the corporate debtor does not pay the dues within the aforementioned time period, and further doesn’t notify the operational creditor regarding any dispute or any pending arbitration proceeding against it, then the operational creditor may initiate or file an application with a view to begin the process of insolvency resolution.
Under the provisions in chapter II of the IBC, if a corporate debtor has not made the payment of pending dues to the operational or a financial creditor, then the corporate debtor or any applicant either financial or corporate debtor, can file the application for the commencement of the insolvency resolution process with the books of account and other relevant financial documents of the business. Moreover, along with the application, the corporate debtor, under section 10 (3) (b) will also file the name of the intended resolution professional.
Under Section 12 of the Insolvency and Bankruptcy Code, the process of the insolvency resolution must be finished within 180 days from the commencement date of the process in the National Company Law Tribunal (NCLT). Once the application is admitted, the claims of creditors shall be frozen by the NCLT for a period of six months, and no legal claim will be made against the corporate debtor in any other court or forum unless the process of liquidation is commenced or an insolvency resolution plan is made.
As mentioned earlier, the application for initiation of resolution of insolvency shall be either admitted or rejected in all the above-mentioned situations by the NCLT inside 14 days of the application made before it. The NCLT shall further under section 16 of the Code appoint interim insolvency resolution professional after taking the permission for the same from the Insolvency and Bankruptcy board. The consent must be received within 14 days of admission of such an application.
Creditors believe that the insolvency resolution plan and its process is an effective medium of recovery for lenders. Moreover, it is also an essential resolution mechanism for corporate debtors. The problems of a debt-ridden company can be effectively resolved through the resolution process, and the company that is viable should be rescued. An effective insolvency resolution plan can really be beneficial to all the stakeholders.
See Our Recommendation: Understanding Information Utility under IBC.