{"id":31565,"date":"2020-04-29T11:58:05","date_gmt":"2020-04-29T06:28:05","guid":{"rendered":"https:\/\/enterslice.com\/learning\/?p=31565"},"modified":"2020-11-24T15:19:10","modified_gmt":"2020-11-24T09:49:10","slug":"understanding-various-aspects-of-insolvency-resolution-plan-under-ibc-2016","status":"publish","type":"post","link":"https:\/\/enterslice.com\/learning\/understanding-various-aspects-of-insolvency-resolution-plan-under-ibc-2016\/","title":{"rendered":"Understanding various aspects of Insolvency Resolution Plan under IBC 2016"},"content":{"rendered":"<p class=\"has-drop-cap\">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. <strong>The main objective of such a resolution plan is to resolve the problem of the corporate debtor&rsquo;s insolvency, where it is unable to pay off its debts.<\/strong> The proposed resolution plan shall be approved by the Committee of Creditors, and it must be in compliance with the mandatory requirements of the <strong><a href=\"https:\/\/enterslice.com\/learning\/insolvency-and-bankruptcy-code\/\">Insolvency and Bankruptcy Code<\/a><\/strong> (IBC). In this article, we shall go through some various aspects of the Insolvency Resolution Plan. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Who is a Resolution Applicant?<\/h2>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter is-resized\"><img decoding=\"async\" loading=\"lazy\" src=\"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2020\/04\/Who-is-a-Resolution-Applicant1.png\" alt=\"Who is a resolution applicant\" class=\"wp-image-31581\" width=\"374\" height=\"374\" srcset=\"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2020\/04\/Who-is-a-Resolution-Applicant1.png 763w, https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2020\/04\/Who-is-a-Resolution-Applicant1-150x150.png 150w, https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2020\/04\/Who-is-a-Resolution-Applicant1-300x300.png 300w\" sizes=\"(max-width: 374px) 100vw, 374px\"\/><\/figure><\/div>\n\n\n\n<p><strong>A resolution\napplicant is a person who submits the resolution plan to a resolution\nprofessional.<\/strong> The resolution plans can be proposed by the creditors or the promoters\nof the corporate debtor. The Committee of Creditors authorizes the resolution\nprofessional to prescribe eligibility and the evaluation criteria for a\nresolution applicant so that only serious applicants are entertained. The IBC\ndefines a resolution applicant as a person who individually or jointly submits\na resolution plan to the resolution professional. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Who cannot be a resolution\napplicant under the Insolvency Resolution Plan?<\/h2>\n\n\n\n<p>Section 29 A of IBC, 2016, specifies\nthe persons who are not eligible to be a resolution applicant. It defines that <strong>a person will not be able to submit a\nresolution plan if that person or any other persons acting jointly with that\nperson is:<\/strong><\/p>\n\n\n\n<ul><li>An undischarged insolvent;<\/li><li>Under the guidelines of the RBI a wilful defaulter;<\/li><li>Having an account of a corporate debtor, at the time of\nsubmitting the insolvency resolution plan, under the management of such person\nor of whom such person is a promoter, categorized as a non-performing asset\nunder the guidelines of the RBI and that one year has elapsed since such\nclassification until the date of initiation of CIRP of the corporate debtor;<\/li><li>Convicted of an offense which is punishable with\nimprisonment;<\/li><li>Disqualified to be a director;<\/li><li>Prohibited from trading in securities by SEBI or from\naccessing the security markets;<\/li><li>Subject to any disability.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">Who is an insolvency\nprofessional?<\/h2>\n\n\n\n<p>An interim resolution professional is\nappointed by the National Company Law Tribunal within 14 days from the date of\ncommencement of the insolvency. The term of the appointment of such a\nprofessional should not exceed 30 days from the date of appointment. <strong>The Insolvency professional shall manage\nthe operation of the corporate debtor, and he shall preserve and protect the\nvalue of the <a class=\"glossaryLink\"  aria-describedby=\"tt\"  data-cmtooltip=\"&lt;div class=glossaryItemTitle&gt;Property&lt;\/div&gt;&lt;div class=glossaryItemBody&gt;Property refers to the legal designation of ownership over valuable items or assets held by an individual or a business. This ownership grants the holder certain legal rights to use, consume,(...)&lt;\/div&gt;\"  href=\"https:\/\/enterslice.com\/learning\/terms\/property\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'>property<\/a>.<\/strong> He shall also take into custody and control the\nassets under the ownership of the corporate debtor. The resolution professional\nshall have access to the documents and records of the corporate debtor through\nthe officer and managers of the corporate debtor. Moreover, he shall also have\naccess to documents and records available with the government authorities,\nauditors etc. of the corporate debtor. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\">How is an Insolvency Resolution\nPlan submitted before the Committee of Creditors?<\/h2>\n\n\n\n<p>The following <strong>procedure is followed for submitting Insolvency Resolution Plan<\/strong>:<\/p>\n\n\n\n<ul><li>The resolution applicant submits a resolution plan with an\naffidavit mentioning that he or she is eligible to the resolution professional\nunder section 29 A. It is prepared on the <a class=\"glossaryLink\"  aria-describedby=\"tt\"  data-cmtooltip=\"&lt;div class=glossaryItemTitle&gt;Basis&lt;\/div&gt;&lt;div class=glossaryItemBody&gt;In finance, the &amp;quot;basis&amp;quot; is a term with several applications, including representing the difference between the spot price and the future contract price of an asset, which is vital in investment(...)&lt;\/div&gt;\"  href=\"https:\/\/enterslice.com\/learning\/terms\/basis\/\"  data-gt-translate-attributes='[{\"attribute\":\"data-cmtooltip\", \"format\":\"html\"}]'>basis<\/a> of the information memorandum.<\/li><li>Then the resolution professional examines each resolution\nplan to make sure that each plan provides for the payment of the cost with\nrespect to the insolvency resolution process in priority to the payment of\ncorporate debtor&rsquo;s other debts. The resolution plan should also provide for the\ndebt payment of the operational creditor in a manner that must not be less than\nthe amount payable to the operational creditor in case of liquidation of the\ncorporate debtor. The resolution professional shall further ensure that the\nresolution plan does not violate any provision of the law for the time being in\nforce.<\/li><li>Once the above-mentioned conditions are fulfilled, then the\nresolution professional shall present the insolvency resolution plan to the\nCommittee of Creditors. <\/li><li>The Committee of creditors, after considering its feasibility\nand viability, by a vote of not less than 66% of voting share of the financial\ncreditors may approve a resolution plan and also after considering any other\nrequirements as specified by the board<\/li><li>The meeting of the Committee of Creditors may be attended by\nthe resolution applicant where its resolution plan is considered, but unless\nthe resolution applicant is a financial creditor, the applicant shall not have\nthe right to vote at the meeting.<\/li><li>Once the resolution plan is approved by the Committee of\nCreditors, the resolution professional will submit it to the Adjudicating\nauthority.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">What are the key contents of an\nInsolvency Resolution Plan?<\/h2>\n\n\n\n<p>There are certain <strong>essentials that must be included in a\nresolution plan<\/strong>. These are mentioned below.<\/p>\n\n\n\n<ul><li>The outstanding amount under a resolution plan to the operational creditors will be given priority in payment than financial creditors.<\/li><li>The resolution plan must explain how it dealt with the interests of all the stakeholders of the corporate debtor, including the financial and operational creditors.<\/li><li>In case the resolution applicant or any of its related parties have in the past, either failed in implementation or has contributed to such failure of any other resolution plan approved by the adjudicating authority, then such details must be included in the resolution plan.<\/li><li>The resolution plan must also include the term of the plan and its implementation schedule, control, and management of the business of a corporate debtor while in its term and appropriate methods of supervising its implementation.<\/li><li>The resolution plan must satisfy some conditions. These include that it is feasible and viable, it addresses the reason of default, it has provisions for required <strong><a href=\"https:\/\/enterslice.com\/learning\/timeline-for-corporate-insolvency-resolution-process\/\">approvals and the timeline<\/a><\/strong> for it, it contains the provisions for its effectual implementation and the applicant of the resolution is eligible to implement the resolution plan.<\/li><\/ul>\n\n\n\n<div class=\"read\"><p><b>Also, Read:<\/b> <mark><a href=\"https:\/\/enterslice.com\/learning\/insolvency-and-bankruptcy-board-of-india\/\" target=\"_blank\" rel=\"noopener noreferrer\">Insolvency and Bankruptcy Board of India<\/a><\/mark>.<\/p><\/div>\n\n\n\n<h2 class=\"wp-block-heading\">How is an Insolvency Resolution\nPlan approved?<\/h2>\n\n\n\n<p>Section 31 of the IBC states that if\nthe adjudicating authority is content with the fact that the resolution plan\napproved by the Committee of Creditors meets the requirements specified in\nsubsection (2) of section 30, then the adjudicating authority shall approve the\nresolution plan by an order that will be binding on the corporate debtor, its\nemployees, members, guarantors, creditors and other stakeholders engaged in the\nresolution plan. However, it must be noted that before passing an order for the\napproval of an insolvency resolution plan, the adjudicating authority shall\nensure that such a plan has provision for effective implementation. In case on\nthe opinion of the adjudicating authority, the resolution plan does not satisfy\nthe above-mentioned requirements, then it may, by an order, reject such a\nresolution plan.<\/p>\n\n\n\n<p>Once the resolution plan is approved,\nthe order passed on the moratorium by the adjudicating authority will cease to\nhave effect, and all the records relating to the conduct of the Corporate\nInsolvency Resolution Process (CIRP) and the resolution plan shall be forwarded\nto the board by the resolution professional to be recorded in its database.<\/p>\n\n\n\n<p>Then the resolution applicant in\nrespect of the resolution plan approved, obtain the mandatory approval that is\nneeded under any law in force for the time being within one year period from\nthe date of the approval by the adjudicating officer of the resolution plan\nunder subsection (1) or within a period as provided for in such law. If the\nresolution plan has a provision for combination, then the applicant of the\nresolution must seek the prior approval of the Competition Commission of India\n(CCI) before the approval of that resolution plan by the Committee of\nCreditors.&nbsp; <\/p>\n\n\n\n<h2 class=\"wp-block-heading\">What does the term &lsquo;Fair and\nEquitable distribution&rsquo; mean under the Insolvency Resolution plan?<\/h2>\n\n\n\n<p>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 <strong><a href=\"https:\/\/nclt.gov.in\/\">NCLT<\/a><\/strong> 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<strong> section 53 of the Code<\/strong>. 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.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">How can Insolvency be resolved\nunder IBC?<\/h2>\n\n\n\n<p>Insolvency is a state where a person\nor an entity is not able to pay off his debts to investors, creditors or\nlenders. Resolution to insolvency can be obtained through two ways-<\/p>\n\n\n\n<ul><li>Modifying or changing the plan of repayment to the creditors\nor investors.<\/li><li>Selling the assets of the company to repay the debts to the creditors\nor the investors through the proceeds of such sale.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">Procedure followed for\ninsolvency resolution by a financial creditor, operational creditor and\ncorporate debtor<\/h2>\n\n\n\n<ul><li><strong>By Financial Creditor<\/strong><\/li><\/ul>\n\n\n\n<p>The financial creditor can\nhimself or jointly commences the filing of an application for insolvency\nproceedings before the National Company Law Tribunal (NCLT) against the\ncorporate debtor. Along with the application, the proof of default and the name\nof the intended insolvency professional to be chosen must be submitted. The\nNCLT has the right to reject the application if it thinks that the corporate\ndebtor does not default or in case there is any pendency of proceeding against\nthe intended resolution professional. It is vital that the NCLT entertains such\nan application within 14 days since the application is made to it.<\/p>\n\n\n\n<ul><li><strong>By operational Creditor<\/strong><\/li><\/ul>\n\n\n\n<p>In case of an insolvency\nresolution process by the operational creditor, the operational creditor must\nserve advance notice of 10 days to the corporate debtor inquiring him about\npayment of pending dues prior to commencing an insolvency resolution process.\nIn case the corporate debtor does not pay the dues within the aforementioned\ntime period, and further doesn&rsquo;t notify the operational creditor regarding any\ndispute or any pending arbitration proceeding against it, then the operational\ncreditor may initiate or file an application with a view to begin the process\nof insolvency resolution.<\/p>\n\n\n\n<ul><li><strong>By Corporate Debtor<\/strong><\/li><\/ul>\n\n\n\n<p>Under the provisions in chapter II of\nthe IBC, if a corporate debtor has not made the payment of pending dues to the\noperational or a financial creditor, then the corporate debtor or any applicant\neither financial or corporate debtor, can file the application for the\ncommencement of the insolvency resolution process with the books of account and\nother relevant financial documents of the business. Moreover, along with the\napplication, the corporate debtor, under section 10 (3) (b) will also file the\nname of the intended resolution professional.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">How long does it take to complete\nthe Insolvency Resolution Process?<\/h2>\n\n\n\n<p>Under Section 12 of the Insolvency\nand Bankruptcy Code, the process of the insolvency resolution must be finished\nwithin 180 days from the commencement date of the process in the National\nCompany Law Tribunal (NCLT). Once the application is admitted, the claims of\ncreditors shall be frozen by the NCLT for a period of six months, and no legal\nclaim will be made against the corporate debtor in any other court or forum\nunless the process of liquidation is commenced or an insolvency resolution plan\nis made.<\/p>\n\n\n\n<p>As mentioned earlier, the application\nfor initiation of resolution of insolvency shall be either admitted or rejected\nin all the above-mentioned situations by the NCLT inside 14 days of the application\nmade before it. The NCLT shall further under section 16 of the Code appoint\ninterim insolvency resolution professional after taking the permission for the\nsame from the Insolvency and Bankruptcy board. The consent must be received\nwithin 14 days of admission of such an application.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Conclusion<\/h3>\n\n\n\n<p>Creditors believe that the <strong>insolvency resolution plan<\/strong> 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.<\/p>\n\n\n\n<div class=\"read\"><p><b>See Our Recommendation:<\/b> <mark><a href=\"https:\/\/enterslice.com\/learning\/understanding-information-utility-under-insolvency-and-bankruptcy-code-ibc\/\" target=\"_blank\" rel=\"noopener noreferrer\">Understanding Information Utility under IBC<\/a><\/mark>.<\/p><\/div>\n","protected":false},"excerpt":{"rendered":"<p>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&rsquo;s insolvency, where it is unable [&hellip;]<\/p>\n","protected":false},"author":35,"featured_media":31571,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[2378],"tags":[2962],"acf":{"service_id":"230"},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v14.6.1 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Understanding Various Aspects of Insolvency Resolution Plan<\/title>\n<meta name=\"description\" content=\"The main objective of Insolvency Resolution Plan is to resolve the problem of the corporate debtor&#039;s insolvency, where it is unable to pay off its debts.\" \/>\n<meta name=\"robots\" content=\"index, follow\" \/>\n<meta name=\"googlebot\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<meta name=\"bingbot\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/enterslice.com\/learning\/understanding-various-aspects-of-insolvency-resolution-plan-under-ibc-2016\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Understanding Various Aspects of Insolvency Resolution Plan\" \/>\n<meta property=\"og:description\" content=\"The main objective of Insolvency Resolution Plan is to resolve the problem of the corporate debtor&#039;s insolvency, where it is unable to pay off its debts.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/enterslice.com\/learning\/understanding-various-aspects-of-insolvency-resolution-plan-under-ibc-2016\/\" \/>\n<meta property=\"og:site_name\" content=\"Enterslice\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/enterslice\" \/>\n<meta property=\"article:published_time\" content=\"2020-04-29T06:28:05+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2020-11-24T09:49:10+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2020\/04\/Understanding-various-aspects-of-Insolvency-Resolution-Plan-under-IBC-2016.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"670\" \/>\n\t<meta property=\"og:image:height\" content=\"352\" \/>\n<meta name=\"twitter:card\" content=\"summary\" \/>\n<meta name=\"twitter:creator\" content=\"@enterslice\" \/>\n<meta name=\"twitter:site\" content=\"@enterslice\" \/>\n<!-- \/ Yoast SEO plugin. -->","authorName":"Ashish M. Shaji","authorImageUrl":"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2020\/10\/04.jpg","authorDescription":"Ashish M. Shaji has done his graduation in law (BA. LLB) from CCS University. He has keen interests in doing extensive research and writing on legal subjects especially on corporate law. He is a creative thinker and has a great interest in exploring legal subjects.","postViews":484,"readingTime":7,"nextPost":{"id":31590,"slug":"innovation-in-insurance-regulatory-sandbox-for-insurance-products"},"prevPost":{"id":31552,"slug":"implications-of-non-compliance-with-the-provisions-of-fssai"},"featuredMediaUrl":"https:\/\/enterslice.com\/learning\/wp-content\/uploads\/2020\/04\/Understanding-various-aspects-of-Insolvency-Resolution-Plan-under-IBC-2016.jpg","postTerms":"Insolvency and Bankruptcy","_links":{"self":[{"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/posts\/31565"}],"collection":[{"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/users\/35"}],"replies":[{"embeddable":true,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/comments?post=31565"}],"version-history":[{"count":0,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/posts\/31565\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/media\/31571"}],"wp:attachment":[{"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/media?parent=31565"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/categories?post=31565"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/enterslice.com\/learning\/wp-json\/wp\/v2\/tags?post=31565"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}