Evaluation of Resolution Plan by the CoC

 

Evaluation of Resolution Plan by the CoC

The CoC is tasked with evaluating the resolution plan to determine whether it is feasible, viable, and in the best interests of the creditors. The primary goal is to maximize the recovery for the creditors, and this is done by assessing several key factors:

A. Key Criteria for Evaluating a Resolution Plan

1. Feasibility and Viability:

   • The CoC ensures that the resolution plan is realistic and implementable. It should outline how the company will be able to repay its debts over time and ensure business continuity.

   • Viability is assessed in terms of whether the business model can be sustained after the plan is implemented. If the company has a future potential for growth, this becomes a key aspect for approval.

2. Maximum Recovery for Creditors:

   • The resolution plan must guarantee that creditors receive at least the liquidation value of their claims (i.e., the amount they would receive if the company is liquidated).

   • The value maximization principle under the IBC ensures that creditors get the best possible recovery from the plan.

3. Compliance with the IBC and Other Legal Requirements:

   • The plan must comply with the IBC and any other regulatory frameworks (e.g., the Companies Act, tax laws).

   • It should also adhere to the eligibility criteria set under Section 29A of the IBC for resolution applicants.

4. Treatment of Creditors:

   • The CoC evaluates how the plan treats different categories of creditors, especially the financial and operational creditors.

   • Operational creditors, although given lower priority in the liquidation waterfall, must receive a fair portion of their dues.

   • The priority of payments in the resolution plan should reflect the IBC's hierarchical approach to the distribution of assets.

5. Sustainability of the Business Post-Resolution:

   • The CoC assesses whether the company can continue its operations after the resolution plan is implemented. If the company remains sustainable, it will generate future value, which ultimately benefits creditors through the restructuring.

6. Cash Flow and Financial Projections:

   • The CoC looks at the cash flow projections of the resolution plan to see if the debtor will be able to meet future obligations and continue paying creditors. A good resolution plan will have clear and realistic cash flow projections for the next few years.

B. Resolution Plan Review Process

1. Initial Assessment:

   • After receiving the resolution plans, the Resolution Professional (RP) compiles them and presents them to the CoC. The RP may also provide insights or recommend one plan over others based on their assessment.

2. Detailed Scrutiny:

   • The CoC conducts a detailed review of each resolution plan. This could include:

     • Ensuring the liquidation value of the creditors is at least met.

     • Evaluating whether the resolution applicant is capable of executing the plan (in terms of financial resources and expertise).

3. Consultation with Experts:

   • The CoC might engage external experts to assess the viability of the resolution plan, such as financial advisors, legal experts, or industry consultants.

4. Voting on the Plan:

   • Once the plan is reviewed, the CoC will vote on it based on the value of their claims.

     • 75% majority by value is required to approve the resolution plan.

     • If the plan is not approved, the company may go into liquidation.

5. Final Submission to NCLT:

   • If the CoC approves the resolution plan, it is submitted to the National Company Law Tribunal (NCLT) for final approval.