Examples of Resolution Plans

 

Examples of Resolution Plans

Let’s look at real-life examples of how resolution plans and creditor voting work.

Example 1: Resolution Plan for a Corporate Debtor

• Company A is facing financial difficulties and defaults on its loans. The CIRP is initiated, and a Resolution Professional (RP) is appointed.

• Several financial creditors, including Bank X, Bank Y, and Supplier Z, make up the CoC.

• A resolution applicant (Company B) submits a resolution plan, which involves:

  • Debt restructuring: Extending the repayment period by 5 years.

  • Equity infusion: Company B will inject additional capital into Company A.

  • Repayment to creditors: The plan proposes that creditors receive 60% of their dues, which is more than they would receive in liquidation.

• The CoC reviews and votes on the plan. Bank X and Bank Y, holding 40% and 30% of the claims respectively, vote in favor.

• Supplier Z, holding 10% of the claim, votes against, but the plan passes with 75% approval.

• The plan is submitted to the NCLT, and after review, it is approved, and the company is saved from liquidation.

Example 2: Operational Creditors in CIRP

• Company C owes significant amounts to operational creditors, such as suppliers and service providers.

• The CIRP is initiated, and the CoC is formed.

• Supplier A, Supplier B, and Service Provider C, though not financial creditors, are part of the CoC because they hold unpaid dues.

• They are outvoted by financial creditors who hold a larger portion of debt.

• The resolution plan, which may provide only a small fraction of what they are owed, is approved by the CoC, and the operational creditors get a proportion of their claims based on the distribution under the liquidation waterfall.