India: A Valid Resolution Plan - The Ideal Mix

Last Updated: 23 August 2017
Article by Nilesh Sharma

Undoubtedly, there is a fresh air and breather amidst the country's NPA clouds as the insolvency and bankruptcy menaces now look up to their new demigod – The IBC 2016 Code. However, with the new code set in, it is important to understand through a fine eye to the various elements of the code that actually can be game changers not only for the applicants but the overall economic scenario at large. Amongst several others – one definitely remains The Resolution Plan.

IBC allows financial creditor (himself or jointly with other financial creditors), an operational creditor or the corporate debtor (through Corporate applicant i.e. corporate debtor itself; or an authorized member, partner of corporate debtor; or a person who has control and supervision over the financial affairs of the corporate debtor) to initiate corporate insolvency resolution process in case a default is committed by corporate a debtor. And hence, there remain several cases filed byall of them. As on date1 over 50 cases have already made their Public Announcements and many cases are at a stage, where applicants have submitted their Resolution Plans as well.

A Resolution Plan is one of the key and differential element of the IBC. A very precise and multi-dimensional understanding of the concept of Resolution Plan is inevitable keeping in mind all attached legal, compliance strings. Whether the mandatory condition that must be stipulated to prepare the Resolution Plan or other key elements, regulations like Insolvency and Bankruptcy Board of India (Insolvency Resolution Process For Corporate Persons) Regulations, 2016– it needs a detailed analysis to have a foolproof plan.

THE INGREDIENTS

The necessary ingredients for a Resolution Plan are detailed under section 30 of the Code. Amongst others, as per Section 30(2)(e) of IBC, a Resolution Plan submitted by Resolution Applicant should not be in contravention to any of the provisions of the law for the time being in force. The above clearly brings out that under the provisions of IBC, there are no dispensations which have been granted under this law and there should not be any mechanism/modus in the Resolution Plan which tantamount to bypassing or breaching any provision of any other law. In case the Resolution Plan drawn up by the Resolution Applicant envisages any relief or concessions from any State/Central Government/Authority, it is restricted only to the extent the same is permissible under the respective laws/statutes/policies.

Regulation 37 of the IBBI (IRP for CP) lays down various measures which may be included in the Resolution Plan. If any such measure included in the resolution plan then all the necessary clearances or permission which may be require for such transfer of the asset will have to be obtained from the concerned department may be Forest department clearance, environmental clearances etc. In case the land / assets have been leased to the CD, then necessary permissions have to be obtained from the lessor. If the transfer of assets has stamp duty implications under the Stamps Act 1899, then any relief shall only be within the four walls of that Act.

In case a resolution plan envisages substantial acquisition of shares, then the necessary compliances with the SEBI Takeover Code norms and SAST Regulation which are applicable will have to be adhered to. Any additional equity to be issued either to existing share holders on Right basis or preferential allotment to any Strategic Investor etc. or any proposed capital reduction the same has to be compliant with the relevant provisions of Companies Act, as may be applicable. The above is in contrast with the provisions as contained under SICA which empowered the BIFR to grant exemption from complying with the SEBI Takeover norms and also the provisions of Companies Act w.r.t. preferential allotment of shares or reduction of capital without complying with the applicable provisions of the Companies Act 2013.

Further, if the proposal envisages merger or consolidation, it has to be ensured that such merger within the ambit of provisions of the Competition Act. For instance, in case of a mergers where the combined Indian assets is worth over Rs.2000 crore or total Indian turnover is more than Rs.5000 crore prior approval of the Competition Commission of India (CCI) is required. Further, if the target Company has assets in excess of Rs.350 crore and turnover exceeding Rs.1000 crore then too prior approval/permission from CCI is mandated. As such, the resolution applicant has to be mindful of the above provisions of the law while preparing a Resolution Plan.In case the resolution plan envisages any preferential allotment of shares to the creditors or proposed strategic investor, or conversion of debt or obligation into long term instruments then the applicant has to ensure compliance with the relevant provisions of Companies Act 2013.

In case the resolution plan envisages any preferential allotment of shares to the creditors or proposed strategic investor, or conversion of debt or obligation into long term instruments then the applicant has to ensure compliance with the relevant provisions of Companies Act 2013.

Regulation 38, covers the mandatory condition of the resolution plan. It stipulates that the resolution plan shall identify the source of funds that will be used for the payment and order /priority of such payment. A resolution plan should provide for insolvency resolution process cost and should ensure that it should be paid in priority of other creditor. With respect to the payment made to be made to the operational creditor, it should be ensured that liquidation value due to operational creditors shall be made and such payment shall be made 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. With respect to the payment made to the dissenting financial creditors (Creditors who voted against the resolution plan) regulation stipulates that Resolution plan should ensure that liquidation value due to such creditors shall be provided and such payment is made before any recoveries are made by the financial creditors who voted in favour of the resolution plan Besides these source of fund and there priority, a resolution plan should also provide for term of the plan and implementation schedule. It should also provide for the management and control of the business of the corporate debtor.

There appears to be no automatic statutory consequence of a failure of the Resolution Plan. However, Section 33(4) read with Section 33(5) provides that any contravention in the provisions of the Resolution Plan can be brought to the notice of NCLT for the purpose of seeking liquidation of the Corporate Debtor and if the NCLT (AA) determines that the Corporate Debtor has contravened the provisions of the Resolution Plan, it shall pass a liquidation order. Therefore, the above provision can be read to mean that in case of failure / non compliance of a Resolution Plan, the Corporate Debtor can face liquidation orders under the provisions of the IBC.

From the above analysis it is abundantly clear that Resolution Professional has to perform his duty very cautiously and meticulously. Performing his duties and making sure that the submitted resolution plan does not contravene the provision of the law for the time being in force is like, walking on a tight rope and making sure he does not fell. He needs continuous legal/ financial/secretarial support from his 'team' and external advisors.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.