The Insolvency and Bankruptcy Code (IBC) has been a transformative legislation in the Indian financial landscape since its enactment in 2016. At the heart of the IBC lies a critical component known as the "Resolution Plan." This blog aims to unravel the intricacies of resolution plans under the IBC, exploring their significance, process, challenges, and the impact they have on corporate insolvency.
• Purpose: The primary objective of a resolution plan is to revive a financially distressed company, offering a viable roadmap for its revival.
• Creditor Settlement: Resolution plans provide a structured approach for settling creditors' claims and restructuring the company's financial obligations.
• Trigger Point: Corporate insolvency proceedings are initiated when a company defaults on its financial obligations, leading to the appointment of an insolvency professional.
• Role of Resolution Applicant: Interested parties, termed as resolution applicants, express their intent to submit a resolution plan for the distressed company.
• Inviting Interest: The insolvency professional invites EOIs from potential resolution applicants, encouraging their participation in the resolution process.
• Due Diligence: Interested parties conduct due diligence to assess the distressed company's financial health, assets, and liabilities.
• Detailed Proposal: Resolution applicants submit a comprehensive resolution plan, outlining their strategy for the distressed company's revival.
• Evaluation: The Committee of Creditors (CoC) evaluates and scrutinizes the submitted plans, ensuring they align with the IBC's objectives.
• Voting Process: The CoC, comprising financial creditors, votes on the submitted resolution plans.
• Majority Approval: A resolution plan requires approval from a significant majority of the CoC to proceed to the next stage.
• Legal Validation: Once approved by the CoC, the resolution plan is presented to the National Company Law Tribunal (NCLT) for legal validation.
• Ensuring Compliance: The NCLT ensures the plan complies with the legal framework and is in the best interest of all stakeholders.
• Execution: Upon NCLT approval, the resolution plan is executed, and the successful resolution applicant takes charge of reviving the distressed company.
• Monitoring: The progress of plan implementation is closely monitored to ensure adherence to the proposed strategies.
• Financial Viability: A successful resolution plan must demonstrate the financial viability of reviving the distressed company.
• Operational Feasibility: Practical and executable strategies are essential for the plan's success.
• Fair Treatment: Ensuring fair treatment of all creditors is crucial for obtaining CoC approval.
• Debt Restructuring: The plan should propose a sustainable mechanism for restructuring the company's debts.
• Strategic Vision: Resolution applicants should present a strategic vision for operational improvements in the distressed company.
• Employee and Stakeholder Welfare: Considerations for the welfare of employees and stakeholders contribute to the plan's holistic approach.
• Creditor Satisfaction: Successful resolution plans result in creditors recovering a significant portion of their outstanding dues.
• Minimized Haircuts: Efficient resolution plans aim to minimize the financial losses, or "haircuts," for creditors.
• Job Preservation: The revival of distressed companies through effective resolution plans helps preserve jobs and contributes to economic stability.
• Market Confidence: Successful resolution plans enhance market confidence, encouraging further investments in distressed assets.
• Setting Standards: Landmark resolution plans set legal and operational standards for future insolvency cases.
• Evolution of Legal Framework: The IBC adapts and evolves based on the experiences and outcomes of resolution plans.
• Execution Risks: The successful execution of resolution plans often faces operational challenges, requiring effective management and oversight.
• Timely Implementation: Delays in the implementation phase can impact the overall success of the resolution plan.
• Digital Transformation: Integrating technology for effective due diligence and monitoring enhances the efficiency of the resolution process.
• Blockchain in Record-Keeping: Blockchain technology can be explored for secure and transparent record-keeping during insolvency proceedings.
Resolution plans under the IBC are a cornerstone in the journey of distressed companies towards financial recovery and stability. As a dynamic and evolving process, resolution plans require meticulous planning, financial acumen, and a commitment to the best interests of all stakeholders. Successful resolution plans not only salvage distressed companies but also set benchmarks for the future, shaping the landscape of corporate insolvency in India. In the continuous pursuit of economic revival, the role of resolution plans remains pivotal, contributing to the resilience and adaptability of the Indian business ecosystem.
Ancoraa Resolution Pvt. Ltd., a company promoted and managed by experienced Insolvency Professions with rich experience in corporate banking, debt resolution, and restructuring.
At Ancoraa Resolution, we are a team of IPs, CAs, CS, Cost Accountants and Lawyers with deep knowledge and practical experience in the insolvency space. The professionals on our team have extensive experience in leading, managing and successfully running insolvency processes across industries.
Ancoraa’s flagship technology, the Rezolution Engine® – is India’s first and only ‘Resolution-as-a Service’ platform providing a collaborative digital avenue to run the entire resolution process in compliance with the Insolvency and Bankruptcy Code of India. Whether you are a supplier, a homebuyer, a bank or a personal guarantor,
Rezolution Engine® enables anyone to initiate an insolvency application and allows all the participants to get a single point of view to the insolvency and bankruptcy proceedings, while maintaining compliance and governance throughout the process.
Shruti is the operations specialist at Ancoraa. She is responsible for IP engagement, company research and operational excellence initiatives. She is passionate about and writes on topics of Insolvency Technology and administers Ancoraa’s flagship technology platform ‘Rezolution Engine’.
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1412, 14th Floor, Real Tech Park, Sector 30 A, Vashi, Navi Mumbai 400703.
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