Skip to content

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

In a pre-packaged insolvency resolution process of Kaveri Textiles Ltd, the corporate debtor's base resolution plan pays operational creditors in full but reduces the dues of financial creditors. The committee of creditors (CoC) wishes to approve it for submission to the Adjudicating Authority. Which statement is correct under Section 54K?

The CoC may approve the base resolution plan, because the test in Section 54K(4) is whether claims of operational creditors are impaired. Operational creditors are paid in full here, so approval is allowed even though financial creditors take a haircut.

  1. AThe CoC may approve the base resolution plan because it does not impair any claims owed to operational creditorsCorrect
  2. BThe CoC cannot approve it because any impairment of financial creditors' claims bars approval
  3. CThe CoC can approve it only if the promoters first agree to dilute their shareholding
  4. DThe CoC must reject it and the resolution professional must apply for termination straight away

Explanation

Section 54K(4) allows the CoC to approve the base plan if it does not impair claims owed to operational creditors. Here operational creditors are paid in full, so approval is permitted. Impairment of financial creditors' claims does not bar approval; dilution of promoter holding is something the CoC may require, not a precondition.

Did you get it right without looking?

One question tells you little. A timed set on Resolution Strategies shows your real accuracy, how long you take and where you lose marks.

Practise Resolution StrategiesFree diagnostic mock

More Resolution Strategies questions