Case Study: Approval of Resolution Plan

QUESTION

National Company Law Tribunal (NCLT) has initiated CIRP on application of one of Operational Creditors of DOP Ltd. A Resolution Professional was appointed after all processes as per the Law. Two viable Resolutions Plans (Plan A and Plan B) were received. Committee of Creditors comprises of Three Financial Creditors. As per Regulations of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, what is the approval status of Resolution Plans (Plan A and Plan B) for various instances of Voting outcome as mentioned below ?

Also, clarify the requisite voting percentage and tie-breaker formula as per the aforesaid Regulations.

ANSWER

Status of Voting outcome:

• Voting outcome 1 - No Plan is approved, as neither of the Plans received requisite votes. The committee shall vote again on Plan B, which received the higher votes, subject to the timelines under the Code.
• Voting outcome 2 - Plan B is approved, as it received higher votes, which is not less than requisite votes.
• Voting outcome 3 - The committee shall approve either Plan A or Plan B, as per the tie-breaker formula announced before voting. As per the amended Provision of Regulation 39 of IBBI (CIRP) Regulations the requisite vote for approving the Resolution plan is 66% (Reduced from 75%).

Tie-breaker formula is a method to break the equality in votes. This has to be decided prior to the meeting and should be communicated to all CoC Members.

SECTION 39(3) OF IBBI(INSOLVENCY RESOLUTION PROCESS FOR CORPORATE PERSONS) REGULATIONS ,2016

The committee shall-

(a) evaluate the resolution plans received under sub-regulation (2) as per evaluation matrix;

(b) record its deliberations on the feasibility and viability of each resolution plan; and

(c) vote on all such resolution plans simultaneously.

SECTION 39 (3A) Where only one resolution plan is put to vote, it shall be considered approved if it receives requisite votes.

SECTION 39(3B) Where two or more resolution plans are put to vote simultaneously, the resolution plan, which receives the highest votes, but not less than requisite votes, shall be considered as approved:

Provided that where two or more resolution plans receive equal votes, but not less than requisite votes, the committee shall approve any one of them, as per the tie-breaker formula announced before voting:

Provided further that where none of the resolution plans receives requisite votes, the committee shall again vote on the resolution plan that received the highest votes, subject to the timelines under the Code.

Illustration

Section 30(4) provides criteria for approval of Resolution Plan

Whether the Resolution Plan;

(a) is feasible and viable, according to the CoC?
(b) has been approved by the CoC with 66% voting share?

SECTION 30(4) The committee of creditors may approve a resolution plan by a vote of not less than sixty-six(66%) per cent. of voting share of the financial creditors, after considering its feasibility and viability, the manner of distribution proposed, which may take into account the order of priority amongst creditors as laid down in sub-section (1) of section 53, including the priority and value of the security interest of a secured creditor] and such other requirements as may be specified by the Board:

Provided that the committee of creditors shall not approve a resolution plan, submitted before the commencement of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017(Ord. 7 of 2017), where the resolution applicant is ineligible under section 29A and may require the resolution professional to invite a fresh resolution plan where no other resolution plan is available with it:

Provided further that where the resolution applicant referred to in the first proviso is ineligible under clause (c) of section 29A, the resolution applicant shall be allowed by the committee of creditors such period, not exceeding thirty days, to make payment of overdue amounts in accordance with the proviso to clause (c) of section 29A:

Provided also that nothing in the second proviso shall be construed as extension of period for the purposes of the proviso to sub-section (3) of section 12, and the corporate insolvency resolution process shall be completed within the period specified in that sub-section.

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.

DISCLAIMER: The case study presented here is only for sharing information with readers. In case of necessity do consult with professionals.