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CS Professional · Corporate Restructuring, Valuation and Insolvency · Resolution Strategies

A base resolution plan of Sutlej Auto Ltd impairs claims of financial creditors and does not require the promoters to dilute their shareholding. The CoC wants to approve it. What does Section 54K(14) require of the CoC?

The CoC must record its reasons for approval before approving the plan. Under Section 54K(14), where claims are impaired but the plan has no promoter dilution, the proviso requires reasons to be recorded; dilution is optional, not mandatory.

  1. AIt must record reasons for its approval prior to approving the planCorrect
  2. BIt must obtain the Adjudicating Authority's permission first
  3. CIt must reject the plan since dilution is mandatory
  4. DIt must hold a second vote with seventy-five per cent approval

Explanation

Section 54K(14) lets the CoC require promoters to dilute holding where claims are impaired. If the plan has no dilution, the proviso requires the CoC to record reasons for approval before approving. Dilution is not mandatory and the vote threshold remains sixty-six per cent.

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