Resolution Strategies: formula sheet

Key formulas

Timing of first CoC meeting

First CoC meeting ≤ 7 days from constitution of the CoC

Section 22(1). The meeting is held within seven days, not after seven days.

Voting threshold for appointment

Vote ≥ 66% of voting share of financial creditors

Section 22(2). Applies to both continuing the IRP and replacing the IRP. Voting share is that of financial creditors only.

If IRP is continued

CoC decision → communicated to IRP, corporate debtor and Adjudicating Authority (subject to IRP's written consent in specified form)

Section 22(3)(a). No application for fresh appointment is needed.

If IRP is replaced

CoC application to Adjudicating Authority + proposed RP's written consent → name sent to Board → appointment after Board confirmation

Section 22(3)(b) and (4).

Board does not confirm in time

No confirmation within 10 days of receiving name → IRP continues as RP until Board confirms

Section 22(5). The Adjudicating Authority directs this by order.

Tenure of IRP

IRP term continues till date of appointment of RP under Section 22

Section 16(5). The earlier fixed 30-day limit was removed.

Later replacement of RP by CoC

Vote of 66% of voting shares + proposed RP's written consent → name to Adjudicating Authority → Board → appointment as in Section 16

Section 27(2) to (4). Applies at any time during CIRP after an RP is appointed under Section 22.

Core duty (Section 23(1))

RP conducts entire CIRP + manages operations of corporate debtor during CIRP period

Subject to section 27. Say 'entire process' and 'operations' in your answer.

Continuity proviso (Section 23(1))

RP continues to manage after CIRP period ends, until order under section 31(1) (plan approval) or section 34 (liquidator appointed)

The trigger is the Adjudicating Authority's order, not the end of the time limit.

Powers of IRP (Section 23(2))

RP exercises powers and performs duties of IRP under this Chapter

Link to section 20 powers for going concern management.

Handover (Section 23(3))

If RP appointed under section 22(4), IRP gives all information, documents and records to RP

Applies only where a new RP is appointed under section 22(4).

Going concern powers (Section 20(2))

Appoint professionals; enter into or amend contracts; raise interim finance; instruct personnel; take all necessary actions

Five heads. Learn them as a list.

Interim finance security condition (Section 20(2)(c))

Security over encumbered property needs prior consent of secured creditors, unless property value ≥ 2 × debt

Exception applies only when value is not less than twice the debt.

CoC approval threshold

Approval needs votes ≥ 66% of the voting share of the financial creditors

Section 30(4). The threshold is on total voting share, not only on the creditors present and voting. The CoC must also consider feasibility, viability and the manner of distribution.

Operational creditor floor

Payment to operational creditors ≥ higher of (liquidation value under section 53) and (amount under the plan's own distribution run through the section 53(1) priority order)

Section 30(2)(b). The RP checks this before presenting the plan to the CoC.

Dissenting financial creditor floor

Payment to a financial creditor who does not vote in favour ≥ amount payable under section 53(1) in liquidation

Section 30(2)(b). Distribution must be fair and equitable.

Plan must pay costs first

Insolvency resolution process costs paid in priority to other debts

Section 30(2)(a), in the manner specified by the Board.

Resolution applicant at CoC meeting

May attend; no vote unless also a financial creditor

Section 30(5).

Deemed shareholder approval

Any shareholder approval needed under the Companies Act, 2013 or other law for implementing the plan is deemed given

Explanation to section 30(2). It prevents the plan from contravening that law on this ground.

Pre-pack approval vote

Base plan or selected plan approved by CoC with votes ≥ 66% of voting shares

Section 54K(13). The base plan route applies only if it does not impair operational creditors' claims (54K(4)).

Purpose of a resolution plan (Reg. 37)

Plan = measures for insolvency resolution + maximisation of value of assets

The listed measures are 'including but not limited to', so the list is illustrative.

Asset measures

Transfer or sale of all or part of assets (with or without security interest); sale of one or more assets to one or more successful applicants, with a manner of dealing with the remaining assets

Sale to several applicants for different assets is allowed under clause (m).

Structural measures

Merger, amalgamation, demerger; substantial acquisition of shares; consolidation; cancellation or delisting of shares, if applicable

Restructuring by merger, amalgamation and demerger is a separate listed measure.

Debt and ownership measures

Modify security interest; waive breach; reduce amount payable; extend maturity or change interest; amend constitutional documents; issue securities for cash, property or in exchange for claims

Debt-equity conversion works through issue of securities in exchange for claims.

Approvals

Plan must obtain necessary approvals from Central and State Governments and other authorities

Always mention this in implementation.

Section 29A eligibility

Applicant (and persons acting jointly or in concert, and connected persons) must not fall in clauses (a) to (i)

Examples: undischarged insolvent, wilful defaulter, disqualified director, SEBI-barred person.

Pre-pack rejection rule (s. 54L(4))

No change in management or control to a non-promoter, non-management person → plan rejected, pre-pack terminated, liquidation order

Pre-pack costs are included in liquidation costs.

Quick revision

• The first meeting of the committee of creditors is held within seven days of its constitution (Section 22).
• The committee can appoint the interim professional as resolution professional, or replace that person, by not less than 66 per cent of the voting share of the financial creditors.
• Continuing the interim professional needs that person's written consent in the specified form. A proposed replacement's written consent goes with the application to the Adjudicating Authority.
• For a replacement, the Adjudicating Authority forwards the name to the Board and appoints only after the Board confirms.
• If the Board does not confirm within ten days, the Adjudicating Authority directs the interim professional to continue until the Board confirms.
• The resolution professional conducts the entire process and manages the company's operations, and continues to do so after the process period ends until an order under Section 31(1) or the appointment of a liquidator.
• The core duty under Section 25 is to preserve and protect the assets, including the continued business operations.
• Section 25 duties include taking custody of assets, maintaining an updated list of claims, preparing the information memorandum and presenting all plans to the committee.
• Interim finances need the approval of the committee of creditors.
• Under Section 31, the Adjudicating Authority approves a plan that meets the requirements, and the plan then binds the company, employees, members, creditors (including Government authorities owed statutory dues), guarantors and other stakeholders.
• After approval, the moratorium ceases and the professional sends all records to the Board.
• The resolution applicant must get the approvals needed under other laws within one year of the approval, or the period in that law if later. A combination needs Competition Commission approval before the committee approves the plan.

Common mistakes

• Writing the threshold as 75%. Fix: Write 66% of the voting share of the financial creditors for Section 22(2) and Section 27(2). Remember that 75% appears for replacing a bankruptcy trustee under Section 145(2), which is a different process.
• Counting operational creditors or all creditors in the vote. Fix: The Section 22(2) vote is on the voting share of the financial creditors. Compute the percentage on that base only.
• Saying the RP's authority ends when the CIRP period expires. Fix: Quote the proviso: the RP continues until an order under section 31(1) or section 34 is passed.
• Treating section 23 as the only source of the RP's powers. Fix: Section 23(2) imports the IRP's powers. Always cite section 20 for going concern management.
• Saying the CoC includes operational creditors with voting rights. Fix: Write that approval is by a vote of the voting share of the financial creditors, as in section 30(4).
• Quoting 75% as the approval threshold. Fix: The current text says sixty-six. Use 66% and mention it is of voting share.
• Treating the Regulation 37 list as closed. Fix: Say the list is illustrative and any lawful measure maximising value can be used.
• Confusing resolution with liquidation. Fix: State that resolution revives the going concern, while liquidation sells assets and dissolves the company.

Exam tips

• Learn the numbers cold: seven days for the first meeting, 66% voting share of financial creditors, ten days for the Board.
• Write answers in the order provision, facts, conclusion. Show the percentage calculation in one line.
• Draw a clear line between continuing the IRP and replacing the IRP. Examiners often test only one of the two routes.
• Mention written consent in the specified form. It is an easy mark that many students miss.
• If the question says 'at any time during CIRP', think of Section 27, not Section 22.
• Start every answer with section 23(1) and its words 'entire corporate insolvency resolution process' and 'operations'.
• Always pair section 23 with section 20 when the question mentions going concern, contracts, staff or interim finance.
• If dates are given, test the proviso: has an order under section 31(1) or section 34 been passed?