Chapter 19 Preparation & Approval of Resolution Plan – Corporate Restructuring Insolvency Liquidation & Winding Up Notes is designed strictly as per the latest syllabus and exam pattern.
Preparation & Approval of Resolution Plan – Corporate Restructuring Insolvency Liquidation & Winding Up Study Material
Question 1.
Explain the changes brought about in Section 30 of Insolvency and Bankruptcy Code, 2016 by the Insolvency and Bankruptcy (Second Amendment) Act, 2018. (Dec 2019, 3 marks)
Answer:
Changes brought about in Section 30 of the Insolvency and Bankruptcy Code, 2016 by the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 are as under:
(a) A resolution applicant to file an affidavit stating that it is eligible under Section 29A of the Code.
(b) Added an explanation to sub-Section (2) of Section 30 of the Code to clarify that if any approval of shareholders is required under the Companies Act, 2013 or any other law for the time being in force for the implementation of actions under the resolution plan, such approval shall be deemed to have been given and it shall not be a contravention of that Act or law.
(c) Substituted sub-Section (4) of Section 30 of the Code, inter alia, reducing the threshold for voting from 75% to 66% for approving a resolution plan by committee of creditors.
(d) in sub-section (2), in clauses (a) and (b), for the word “repayment” at both the places where it occurs, the word “payment” shall be substituted;
(e) after the third proviso, the following proviso shall be inserted, namely: “Provided also that the eligibility criteria in Section 29A as amended by the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 shall apply to the resolution applicant who has not submitted resolution plan as on the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018.”
Question 2.
Are there any grounds to appeal against the approval of Resolution Plan by the Adjudicating Authority in terms of Insolvency and Bankruptcy Code, 2016? (Dec 2020, 3 marks)
Answer:
(i) In terms of Section 32 of the Insolvency and Bankruptcy Code, 2016, read along with section 61(3), an appeal can be made against the order approving a resolution plan under the specified grounds.
(ii) (a) The approved resolution plan is in contravention of the provisions of any law for the time being in force;
(b) there has been material irregularity in exercise of the powers by the resolution professional during the corporate insolvency resolution period;
(c) the debts owed to the operational creditors of the corporate debtor have not been provided for;
(d) the insolvency resolution process costs have not been provided for repayment in priority to all other debts;
(e) the resolution plan does not comply with any other criteria specified by the Board.
Question 3.
“Resolution Plan needs approval of not only the Committee of Creditors but also by the Adjudicating Authority to make it legally binding.” Comment the statement briefly detailing the law enabling Adjudicating Authority to approve the Plan. (Aug 2021, 5 marks)
Answer:
At first instance the Resolution Plan is approved by the Committee of Creditors with a Voting share of not less than sixty six percent as per Section 30 (4) of the Insolvency & Bankruptcy Code, 2016 (IBC). After approval, the Resolution Applicant shall make an Application to the Adjudicating Authority in terms of Section 30 (6) of IBC.
According to Section 31 of the IBC, If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under section 30(4) meets the requirements as referred to in section 30(2), it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local authority to whom a debt in respect of the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues are owed, guarantors and other stakeholders involved in the resolution plan.
However, the Adjudicating Authority shall, before passing an order for approval of resolution plan, satisfy that the resolution plan has provisions for its effective implementation.
Where the Adjudicating Authority is satisfied that the resolution plan does not confirm to the requirements, it may, by an order, reject the resolution plan.
Question 4.
“A resolution plan shall provide for the measures, as may be necessary for insolvency resolution of a corporate debtor for maximization of values of its assets.” Discuss the measures provided in Regulation 37 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulation, 2016. (Dec 2021, 5 marks)
Answer:
The Insolvency and Bankruptcy Board of India (IBBI) has made the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations) to regulate the Insolvency Resolution Process for Corporate Persons.
Corporate Restructuring process in India under Insolvency and Bankruptcy Code, 2016 may be governed by the provisions of the Regulation 37 of CIRP Regulations; however the Code is silent on the measures of the resolution and restructuring of the corporate debtor. Regulation 37, as substituted vide Notification No. IBBI/2017-18/GN/ REG024, dated 6th February, 2018, provides that:
“A resolution plan shall provide for the measures, as may be necessary, for insolvency resolution of the corporate debtor for maximization of value of its assets including but not limited to the following:
a. transfer of all or part of the assets of the corporate debtor to one or more persons;
b. sale of all or part of the assets whether subject to any security interest or not;
(ba) restructuring of the corporate debtor, by way of merger, amalgamation and demerger; ,
c. the substantial acquisition of shares of the corporate debtor, or the merger or consolidation of the corporate debtor with one or more persons
(ca) cancellation or delisting of any shares of the corporate debtor, if applicable;
d. satisfaction or modification of any security interest
e. curing or waiving of any breach of the terms of any debt due from the corporate debtor;
f. reduction in the amount payable to the creditors;
g. extension of a maturity date or a change in interest rate or other terms of a debt due from the corporate debtor
h. amendment of the constitutional documents of the corporate debtor;
i. issuance of securities of the corporate debtor, for cash, property, securities, or in exchange for claims or interests, or other appropriate purpose;
j. change in portfolio of goods or services produced or rendered by the corporate debtor;
k. change in technology used by the corporate debtor; and35 PP-CRIL&W-December 2021
l. obtaining necessary approvals from the Central and State Governments and other authorities.”
Question 5.
You, acting as a Resolution Professional received a Resolution Plan. How will you satisfy yourself that the plan is in order for submission to the Committee of Creditors? (Dec 2021, 5 marks)
Answer:
Section 30(2) of the Insolvency and Bankruptcy Code, 2016 provides that the resolution professional shall examine each resolution plan received by him to confirm that each resolution plan:
(a) provides for the payment of insolvency resolution process costs in a manner specified by the Board in priority to the payment of other debts of the corporate debtor;
(b) provides for the payment of the debts of operational creditors in such manner as may be specified by the Board which shall not be less than:
- the amount to be paid to such creditors in the event of a liquidation of a corporate debtor under section 53; or
- the amount that would have been paid to such creditors, if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in sub-section (1) of section 53,
Whichever is higher, and provides for the payment of debts of financial creditors, who do not vote in favour of the resolution plan, in such manner as may be specified by the Board, which shall not be less than the amount to be paid to such creditors in accordance with sub-section (1) of section 53 in the event of a liquidation of the corporate debtor.
Explanation 1. For the removal of doubts, it is hereby clarified that a distribution in accordance with the provisions of this clause shall be fair and equitable to such creditors.
Explanation 2 : For the purposes of this clause, it is hereby declared that on and from the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2019, the provisions of this clause ‘•shall also apply to the corporate insolvency resolution process of a corporate debtor-
- Where a resolution plan has not been approved or rejected by the Adjudicating Authority;
- Where an appeal has been preferred under section 61 or section 62
or such an appeal is not time barred under any provision of law for the time being in force; or , - Where a legal proceeding has been initiated in any court against the decision of the Adjudicating Authority in respect of a resolution plan.
(c) provides for the management of the affairs of the Corporate debtor after approval of the resolution plan;
(d) the implementation and supervision of the resolution plan;
(e) does not contravene any of the provisions of the law for the time being in force;
(f) confirms to such other requirements as may be specified by the Board.
Question 6.
“A person convicted of any offence punishable with imprisonment for five years under any Act specified in the Twelfth Schedule of the Insolvency and Bankruptcy Code, 2016 is not eligible to be a resolution applicant under the Insolvency and Bankruptcy Code, 2016 (the Code).” Do you agree ? Give at least five grounds which make a person not eligible to become a resolution applicant under the Code. (June 2022, 5 marks)
Question 7.
Who is not Eligible to be Resolution Applicant?
Answer:
- is an undischarged insolvent
- is a wilful defaulter in accordance with the guidelines of the Reserve Bank of India
- at the time of submission of the resolution plan has an account, or an account of a corporate debtor under the management or control of such person or of whom such person is a promoter, classified as non-performing asset in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 or the guidelines of a financial sector regulator issued under any other law for the time being in force, and at least a period of one year has lapsed from the date of such classification till the date of commencement of the corporate insolvency resolution process of the corporate debtor
- has been convicted for any offence punishable with imprisonment:
- for two years or more under any Act specified under the Twelfth Schedule
- for seven years or more under any law for the time being in forceProvided that this clause shall not apply to a person after the expiry of a period of two years from the date of his release from imprisonment
- is disqualified to act as a director under the Companies Act, 2013
- is prohibited by the Securities and Exchange Board of India from trading
- has been a promoter or in the management or control of a corporate debtor in which a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place and in respect of which an order has been made by the Adjudicating Authority under this Code
- has executed a guarantee in favour of a creditor in respect of a corporate debtor against which an application for insolvency resolution made by such creditor has been admitted under this Code and such guarantee has been invoked by the creditor and remains unpaid in full or part
- is subject to any disability, corresponding to clauses (a) to (h), under any law in a jurisdiction outside India
- has a connected person not eligible under above clauses
Question 8.
Where can one file appeal against an order approving a resolution plan?
Answer:
An appeal against an order approving a resolution plan may be filed on the
following grounds:
- the approved resolution plan is in contravention of the provisions of any law
- there has been material irregularity in exercise of the powers by the resolution professional
- the debts owed to operational creditors of the corporate debtor have not been provided for in the resolution plan
- the insolvency resolution process costs have not been provided for repayment in priority to all other debts
- the resolution plan does not comply with any other criteria specified by the Board
Question 9.
Explain the “Regulation 40C of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016”
Answer:
Regulation 40C of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016” is as under: “Notwithstanding the time-lines contained in these regulations, but subject to the provisions in the Code, the period of lockdown imposed by the Central Government in the wake of Covid-19 outbreak shall not be counted for the purposes of the time-line for any activity that could not be completed due to such lockdown, in relation to a corporate insolvency resolution process.”
Question 10.
Explain the key amendments IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, vide notification dated March 15, 2021?
Answer:
IBBI amended the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, vide notification dated March 15, 2021 to provide for the following:
(a) A creditor shall update its claim as and when the claim is satisfied, partly or fully from any source in any manner, after the insolvency commencement date.
(b) The IRP/RP shall file Form CIRP 7 within three days of the due date, where any of the following activities is not completed:
- Public announcement is not made by T+3 day; th
- Appointment of RP is not made by T+30 day;
- Information memorandum (1M) is not issued within 51 days from the date of public announcement;
- Request for resolution plan is not issued within 51 days from the date of issue of IM;
- CIRP is not completed by T + 180 days.
Preparation & Approval of Resolution Plan Notes
Resolution plan
A ‘resolution plan’ means a plan proposed by any person for insolvency resolution of the corporate debtor as a going concern in accordance with Part II”
Resolution applicant
A “resolution applicant” means a person, who individually or jointly with any other person, submits a resolution plan to the resolution professional pursuant to the invitation made under clause (h) of sub-section (2) of section 25.
Persons not Eligible to be Resolution Applicant
- is an undischarged insolvent
- is a wilful defaulter in accordance with the guidelines of the Reserve Bank of India
- at the time of submission of the resolution plan has an account, or an account of a corporate debtor under the management or control of such person or of whom such person is a promoter, classified as non-performing asset in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 or the guidelines of a financial sector regulator issued under any other law for the time being in force, and at least a period of one year has lapsed from the date of such classification till the date of commencement of the corporate insolvency resolution process of the corporate debtor
- has been convicted for any offence punishable with imprisonment:
- for two years or more under any Act specified under the Twelfth Schedule
- for seven years or more under any law for the time being in force Provided that this clause shall not apply to a person after the expiry of a period of two years from the date of his release from imprisonment
- is disqualified to act as a director under the Companies Act, 2013
- is prohibited by the Securities and Exchange Board of India from trading
- has been a promoter or in the management or control of a corporate debtor in which a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place and in respect of which an order has been made by the Adjudicating Authority under this Code
- has executed a guarantee in favour of a creditor in respect of a corporate debtor against which an application for insolvency resolution made by such creditor has been admitted under this Code and such guarantee has been invoked by the creditor and remains unpaid in full or part
- is subject to any disability, corresponding to clauses (a) to (h), under any law in a jurisdiction outside India
- has a connected person not eligible under above clauses
Inviting Prospective Resolution Applicants
The resolution professional, under clause (h) of sub-section (2) of section 25, invites prospective resolution applicants to submit a resolution plan or plans
Submission of Resolution Plan
- The resolution professional is required to submit each resolution plan to the committee of creditors who shall approve a resolution plan by a vote of not less than sixty-six percent of voting share of the financial creditors
- A resolution plan is required to be accompanied with an affidavit by the resolution applicant stating that he is eligible under section 29A of the Code.
Approval of Resolution Plan
If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan.
The Adjudicating Authority, before passing an order for approval of resolution plan, shall satisfy that the resolution plan has provisions for its effective implementation.
The resolution applicant shall, obtain the necessary approval required under any law for the time being in force within a period of one year from the date of approval of the resolution plan by the Adjudicating Authority
The resolution applicant shall obtain the approval of the Competition Commission of India, if required
Appeal
An appeal against an order approving a resolution plan may be filed on the following grounds:
- the approved resolution plan is in contravention of the provisions of any law
- there has been material irregularity in exercise of the powers by the resolution professional
- the debts owed to operational creditors of the corporate debtor have not been provided for in the resolution plan
- the insolvency resolution process costs have not been provided for repayment in priority to all other debts
- the resolution plan does not comply with any other criteria specified by the Board