Meaning of Resolution Plan under IBC

The Insolvency and Bankruptcy Code, 2016 (IBC) was introduced to create a consolidated framework for insolvency resolution in India. It aims to revive distressed companies and ensure maximum value for creditors, employees, and stakeholders. The centrepiece of the corporate insolvency resolution process (CIRP) under the IBC is the Resolution Plan. This plan is not about liquidating the company but about reviving it as a going concern, safeguarding jobs, and protecting the economy.

A resolution plan outlines how the corporate debtor’s financial distress will be resolved, the method of repayment or restructuring of debts, and the manner in which the company can return to stability. It balances the interests of all stakeholders while maximising the value of the corporate debtor’s assets.

Definition of Resolution Plan

Section 5(26) of the IBC defines a “Resolution Plan” as a plan proposed by a resolution applicant for insolvency resolution of the corporate debtor as a going concern in accordance with Part II of the Code.

• A resolution plan may include provisions for the restructuring of the corporate debtor, including insolvency resolution through merger, amalgamation, or demerger.
  
• The emphasis is on treating the company as a going concern, which means the plan must ensure the continuation of business operations and not merely focus on repayment.

In simple terms, a resolution plan is a detailed proposal made by an eligible person, known as the resolution applicant, to revive a financially distressed company under the supervision of the resolution professional and the committee of creditors.

Who Can Submit a Resolution Plan?

Under Section 30 of the IBC, any resolution applicant can submit a resolution plan, provided they are eligible under Section 29A.

• A resolution applicant is any person who submits a resolution plan to the resolution professional.
• Section 29A places restrictions to prevent willful defaulters, promoters of defaulting companies, and certain other categories from regaining control of the corporate debtor.
• Every applicant must submit an affidavit of eligibility, ensuring compliance with Section 29A.

Thus, the framework ensures that only credible and financially capable applicants can submit a resolution plan.

Submission of Resolution Plan

The process of submission is regulated by Section 30 of the Code and the CIRP Regulations.

• The resolution professional prepares an Information Memorandum containing all financial and operational details of the corporate debtor.
• Based on this memorandum, the resolution applicant prepares the plan.
• The plan must be submitted along with the affidavit of eligibility under Section 29A.
• Strict adherence to the Request for Resolution Plan (RFRP) format is necessary. This includes signing and stamping all documents, submitting undertakings, and avoiding the use of promotional material like brochures.
• Non-compliance with prescribed forms and documentation may result in rejection of the plan.

This ensures a uniform, transparent, and legally valid process.

Measures Permitted under a Resolution Plan (Regulation 37)

A resolution plan may propose a wide range of measures to achieve insolvency resolution and maximise the value of assets. Some of these include:

• Transfer or sale of assets of the corporate debtor, wholly or partially, to one or more persons.
• Substantial acquisition of shares, or merger and consolidation of the corporate debtor with other entities.
• Delisting or cancellation of shares if required.
• Satisfaction or modification of security interest created on assets.
• Waiver or modification of debt obligations, such as reduction in payable amounts.
• Restructuring of debt, including extension of maturity, change in interest rates, or revised repayment terms.
• Amendment of constitutional documents of the corporate debtor.
• Issuance of new securities for raising capital.
• Diversification or change in product/service portfolio to adapt to market conditions.
• Adoption of new technology for improving efficiency.
• Obtaining approvals from central and state governments or regulatory authorities necessary for implementation.

These measures provide flexibility to design a plan best suited for the revival of the company.

Mandatory Contents of a Resolution Plan (Regulation 38)

The IBC requires every resolution plan to contain certain minimum details to ensure feasibility and fairness.

1. Term of the Plan and Implementation Schedule: The plan must specify its duration and provide a clear timeline for implementation.
2. Management and Control: It should set out how the business of the corporate debtor will be managed after approval.
3. Mechanism for Supervision: Adequate means of monitoring and supervising the implementation must be included.
4. Addressing the Cause of Default: The plan must demonstrate how it cures the reasons that led to the default.
5. Feasibility and Viability: It must be practical and capable of implementation under the given financial and operational conditions.
6. Effective Implementation Provisions: Clear strategies for execution must be provided, leaving no scope for ambiguity.
7. Approvals and Timelines: The plan should contain provisions for obtaining all necessary approvals within stipulated timelines.
8. Capability of Resolution Applicant: The applicant must show financial and managerial ability to execute the plan.
9. Payments: It should specify sources of funds for:
   • payment of CIRP costs (in priority to all other payments),
   • payment of operational creditors (before financial creditors), and
   • settlement of dues of dissenting financial creditors.
10. Compliance with Law: The plan must declare that it is not in contravention of any applicable law.

Approval of Resolution Plan

Once submitted, the resolution plan undergoes a multi-level approval process:

• The Committee of Creditors (CoC) evaluates the plan based on feasibility, viability, and value maximisation.
• Approval requires at least 66% voting share of the CoC.
• Once approved by the CoC, the plan is submitted to the National Company Law Tribunal (NCLT) under Section 31 for final confirmation.
• After NCLT’s approval, the plan becomes binding on:
  • the corporate debtor,
  • its employees, members, and creditors,
  • the Central and State Governments, and
  • any other stakeholders, including authorities to whom statutory dues are owed.

Execution of Resolution Plan

The IBC also requires clarity on execution. Regulation 38(2) mandates that the plan must specify:

• Timelines for payments to CIRP costs, operational creditors, financial creditors, and other stakeholders.
• Approvals required under laws such as the Competition Act, 2002, regulations of the Reserve Bank of India in case of external borrowings, or SEBI guidelines for listed companies.
• Mechanisms for supervising implementation, including the possibility of a monitoring committee.

Thus, execution is as important as drafting, since a well-drafted but poorly executed plan defeats the purpose of resolution.

Judicial Interpretation of Resolution Plans

Courts and tribunals in India have played a significant role in shaping the understanding of resolution plans.

• Arcelor Mittal India Pvt. Ltd. v. Satish Kumar Gupta (2018) – clarified eligibility criteria of resolution applicants under Section 29A.
• Swiss Ribbons Pvt. Ltd. v. Union of India (2019) – upheld the primacy of resolution over liquidation and highlighted the role of resolution plans in achieving IBC’s objectives.
• Committee of Creditors of Essar Steel India Ltd. v. Satish Kumar Gupta (2019) – emphasised the commercial wisdom of the CoC in evaluating and approving plans, with limited judicial review.
• K. Sashidhar v. Indian Overseas Bank (2019) – reiterated that courts cannot interfere with CoC’s decision if it is based on feasibility and viability.

These cases underline that resolution plans are at the heart of the IBC and must be evaluated with a focus on reviving the debtor.

Conclusion

The resolution plan under the Insolvency and Bankruptcy Code, 2016 is the backbone of the corporate insolvency resolution process. It represents a carefully designed roadmap to revive a distressed company as a going concern while protecting the rights of creditors and other stakeholders.

By mandating specific contents, requiring strict eligibility criteria, and subjecting plans to the approval of both the Committee of Creditors and the Adjudicating Authority, the IBC has created a structured system that promotes fairness, transparency, and efficiency.