Answer By law4u team
A resolution plan serves as a detailed proposal to revive and restructure the insolvent corporate debtor during the CIRP under the IBC. To safeguard the interests of all stakeholders and ensure the plan is effective and sustainable, the IBC mandates specific criteria that the plan must fulfill before being approved by the CoC and sanctioned by the NCLT.
Detailed Criteria for Approval of a Resolution Plan
Feasibility and Viability
The plan must demonstrate that the corporate debtor will be able to operate as a going concern post-implementation.
It should provide a clear financial model showing expected cash flows, profitability, and debt repayment capability.
Operational restructuring details must outline how the company will address previous inefficiencies.
Compliance with Applicable Laws
The plan must comply with all applicable laws, including corporate, tax, labour, environmental, and sector-specific regulations.
It should ensure protection of employee rights and fulfill statutory obligations.
Payment of Insolvency Resolution Process Costs
The plan must allocate funds to cover all costs and expenses incurred during the CIRP, including fees payable to the Interim Resolution Professional (IRP), Resolution Professional (RP), and other professionals.
Treatment of Operational Creditors
As per IBC amendments, operational creditors must receive treatment specified in the plan, either via full payment or as approved by the CoC.
The plan should not unfairly discriminate or exclude operational creditors without appropriate consideration.
Clearance of Statutory and Other Dues
Provisions must be made to clear or adequately provide for any statutory dues such as taxes, cess, or government fees.
No Contravention of Existing Laws
The plan must not violate any provisions of law currently in force.
Approval by Committee of Creditors (CoC)
The plan requires approval by at least 66% of the voting share of financial creditors.
The CoC evaluates the plan on commercial viability, fairness, and compliance with legal norms.
Fair and Equitable Treatment of All Stakeholders
The plan must ensure that the interests of all stakeholders, including secured and unsecured creditors, employees, and shareholders, are fairly balanced.
The distribution waterfall must follow the priority order prescribed in the IBC.
Management and Governance Post-Resolution
The plan should specify changes to the management or board of directors if applicable.
It should detail governance structures to ensure effective control and monitoring.
Submission Within Prescribed Timeline
The plan must be submitted within the CIRP timeline (usually 180 days, extendable by 90 days) to avoid mandatory liquidation.
No Conflict with Public Interest or Policy
The plan should not contravene public policy or harm public interest.
Legal Provisions Supporting These Criteria
- Section 30(2) of the IBC outlines mandatory contents and conditions of a resolution plan.
- Section 31 provides for NCLT approval and binding effect of the sanctioned plan.
- Amendments to the IBC have strengthened protections for operational creditors and employee dues.
Example
A resolution applicant proposes a plan involving capital infusion, management restructuring, and operational improvements for a textile company. The plan complies with labour laws, clears insolvency costs, proposes a schedule for operational creditors’ payments, and is financially viable. The CoC approves the plan with 75% voting share. The NCLT sanctions the plan after confirming compliance with all criteria, enabling the company’s revival and creditor repayments.
