Formulation & Implementation Of Resolution Plans And Control Transition Support
An IRP (i.e. Insolvency Resolution Plan) for any Certificate of Deposit is an exclusive combination of managerial, financial, legal as well as technical features that would grant a reasonable guarantee of sustainable viability over the period of recovery from both internal as well as external stresses. The IBC (i.e. Insolvency and Bankruptcy Code), 2016, is distinctive as it has integrated this approach as a time-bound exercise, with typical focus on all its stakeholders. As it is next to impossible to standardize the sources that would help not only in the preparation but also the execution of a rewarding resolution plan.
Legal Aspects of Compliance
A few notable connected areas of IBC, its Regulations along with other legislation that impinges on this activity are explained in detail below. The Template given below is built keeping in mind the necessities under the related legal framework.
Template of an Insolvency Resolution Plan
Details of the Applicant: This must contain any earlier association with the CD, applicant’s Profile, Track record, etc.
Executive Summary
In the recovery plan, it is important to provide a summary of the key elements.
Material Changes
Since the commencement of proceedings under IBC, it is important to list all material changes, description of legal and financial structures and the organizational framework of the CD.
Business Profile
A summary identification of core business lines along with its critical functions is mandatory.
Governance Arrangements (Board/Management)
Disclosing the CD’s governance arrangements is important. It must include the following details:
Resolution Strategy/Options
Listing and describing the resolution options, inclusive of:
It is important to note that while identifying the resolution options for a CD, one must consider a range of severe macroeconomic as well as financial stress scenarios relevant to the CD’s specific conditions.
In order to restore its financial position following a significant deterioration, a summary of the overall resolution capacity of the CD and the overall capability of the corporate is needed. This may also include:
Describe preparatory measures and plans to be taken up by the CD, for implementing the resolution plan. Assessment of gaps (if any) in key human resources, technical requirements, Opex/Capex, Tax issues, uninterrupted availability of critical resources, etc. Details of the payment schedule for all the Stakeholders. Indicating how the Cash Flow would be managed during the resolution period, including any requirement of Interim Finance and likely costs, sources, terms, etc. Aligning essential Business needs with the Resolution Plan objectives.
Additional material information
Include additional information where this information is material to the CD’s business. Recovery indicators List and explain the resolution plan indicators and the points which identify when the CD needs to take appropriate actions in the plan. Explain how recovery indicators are proposed to be monitored.
Legal Aspects – Model Resolution Plan
Preparation of an Information Memorandum
IBC Sec. 29(1) The Resolution Professional shall prepare an information memorandum in such form and manner containing such relevant information as may be specified by the Board for formulating a resolution plan.
(2) The resolution professional shall provide to the resolution applicant access to all relevant information in physical and electronic form, provided such resolution applicant undertakes— (a) to comply with provisions of law for the time being in force relating to confidentiality and insider trading; (b) to protect any intellectual property of the corporate debtor it may have access to; and (c) not to share relevant information with third parties unless clauses (a) and (b) of this subsection are complied with. Explanation.—For the purposes of this section, “relevant information” means the information required by the resolution applicant to make the resolution plan for the corporate debtor, which shall include the financial position of the corporate debtor, all information related to disputes by or against the corporate debtor and any other matter pertaining to the corporate debtor as may be specified
Submission of Resolution Plan IBC Sec. 30. (1) A resolution applicant may submit a resolution plan to the resolution professional prepared on the basis of the information memorandum.
(2) The resolution professional shall examine each resolution plan received by him to confirm that each resolution plan— (a) provides for the payment of insolvency resolution process costs in a manner specified by the Board in priority to the repayment of other debts of the corporate debtor; (b) provides for the repayment of the debts of operational creditors in such manner as may be specified by the Board which shall not be less than the amount to be paid to the operational creditors in the event of a liquidation of the corporate debtor under section 53; (c) provides for the management of the affairs of the Corporate debtor after approval of the resolution plan; (d) the implementation and supervision of the resolution plan; (e) does not contravene any of the provisions of the law for the time being in force; (f) conforms to such other requirements as may be specified by the Board.
CARE: Sec (5) The resolution applicant may attend the meeting of the committee of creditors in which the resolution plan of the applicant is considered: Provided that the resolution applicant shall not have a right to vote at the meeting of the committee of creditors unless such resolution applicant is also a financial creditor.
IR Regulation 31 “Insolvency resolution process costs” under Section 5(13)(e) shall mean- (a) amounts due to suppliers of essential goods and services under Regulation 32; (b) amounts due to a person whose rights are prejudicially affected on account of the moratorium imposed under section 14(1)(d); (c) expenses incurred on or by the interim resolution professional to the extent ratified under Regulation 33; (d) expenses incurred on or by the resolution professional fixed under Regulation 34; and (e) other costs directly relating to the corporate insolvency resolution process and approved by the committee.
IR Regulation 33 (4) Costs of the interim resolution professional. The amount of expenses ratified by the committee shall be treated as insolvency resolution process costs.
Explanation- For the purposes of this Regulation, “expenses” mean the fee to be paid to the interim resolution professional and other expenses, including the cost of engaging professional advisors, to be incurred by the interim resolution professional.
IR Regulation 34. Resolution professional costs. The committee shall fix the expenses to be incurred on or by the resolution professional and the expenses shall constitute insolvency resolution process costs. Explanation- For the purposes of this Regulation, “expenses” mean the fee to be paid to the resolution professional and other expenses, including the cost of engaging professional advisors, to be incurred by the resolution professional.
Resolution Plan
IR Regulation 35(1) Liquidation value is the estimated realizable value of the assets of the corporate debtor if the corporate debtor were to be liquidated on the insolvency commencement date.
(2) Liquidation value shall be determined in the following manner: (a) the two registered valuers appointed under Regulation 27 shall submit to the interim resolution professional or the resolution professional, as the case may be, an estimate of the liquidation value computed in accordance with internationally accepted valuation standards, after physical verification of the inventory and fixed assets of the corporate debtor; (b) if in the opinion of the interim resolution professional or the resolution professional, as the case may be, the two estimates are significantly different, he may appoint another registered valuer who shall submit an estimate computed in the same manner; and (c) the average of the two closest estimates shall be considered the liquidation value.
(3) The resolution professional shall provide the liquidation value to the committee in electronic form.
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Subject to sub-regulation (4), the interim resolution professional or the resolution professional, as the case may be, shall submit an information memorandum in electronic form to each member of the committee and any potential resolution applicant containing- (a) at least the matters listed in paragraphs (a) to (i) of sub-regulation (2), before its first meeting; and (b) matters listed in paragraphs (j) to (l) of sub-regulation (2), within fourteen days of the first meeting.
(2) The information memorandum shall contain the following details of the corporate debtor- (a) assets and liabilities, as on the insolvency commencement date, classified into appropriate categories for easy identification, with estimated values assigned to each category; (b) the latest annual financial statements; (c) audited financial statements of the corporate debtor for the last two financial years and provisional financial statements for the current financial year made up to a date not earlier than fourteen days from the date of the application; (d) a list of creditors containing the names of creditors, the amounts claimed by them, the amount of their claims admitted and the security interest, if any, in respect of such claims; (e) particulars of a debt due from or to the corporate debtor with respect to related parties; (f) details of guarantees that have been given in relation to the debts of the corporate debtor by other persons, specifying which of the guarantor is a related party; (g) the names and addresses of the members or partners holding at least one per cent stake in the corporate debtor along with the size of stake; (h) details of all material litigation and an ongoing investigation or proceeding initiated by Government and statutory authorities; (i) the number of workers and employees and liabilities of the corporate debtor towards them; (j) the liquidation value; (k) the liquidation value due to operational creditors; and (l) other information, which the resolution professional deems relevant to the committee.
(3) A member of the committee may request the resolution professional for further information of the nature described in this Regulation and the resolution professional shall provide such information to all members within reasonable time if such information has a bearing on the resolution plan.
(4) The interim resolution professional or the resolution professional, as the case may be, shall share the information memorandum after receiving an undertaking from a member of the committee or a potential resolution applicant to the effect that such member or resolution applicant shall maintain confidentiality of the information and shall not use such information to cause an undue gain or undue loss to itself or any other person and comply with the requirements under section 29(2).
(1) A resolution plan may provide for the measures required for implementing it, including but not limited to the following- (a) transfer of all or part of the assets of the corporate debtor to one or more persons; (b) sale of all or part of the assets whether subject to any security interest or not; (c) the substantial acquisition of shares of the corporate debtor, or the merger or consolidation of the corporate debtor with one or more persons; (d) satisfaction or modification of any security interest; (e) curing or waiving of any breach of the terms of any debt due from the corporate debtor; (f) reduction in the amount payable to the creditors; (g) extension of a maturity date or a change in interest rate or other terms of a debt due from the corporate debtor; (h) amendment of the constitutional documents of the corporate debtor; (i) issuance of securities of the corporate debtor, for cash, property, securities, or in exchange for claims or interests, or other appropriate purpose; and (j) obtaining necessary approvals from the Central and State Governments and other authorities.
