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CS Professional · Insolvency and Bankruptcy - Law and Practice · Resolution Strategies (Elective 7.5)

In a pre-packaged insolvency resolution process of Malabar Foods Pvt Ltd, the corporate debtor submitted a base resolution plan that pays operational creditors 70% of their confirmed claims. Which consequence follows under the Code?

Because the base plan pays operational creditors only 70% of confirmed claims, it impairs their claims, so the committee cannot approve it as the base plan. The resolution professional must invite prospective resolution applicants to submit plans competing with the base resolution plan.

  1. AThe committee of creditors may approve it by a simple majority
  2. BThe corporate debtor must withdraw and re-file the application
  3. CThe Adjudicating Authority may approve it directly without the committee
  4. DThe committee cannot approve it as the base plan; the resolution professional must invite prospective resolution applicants to submit competing plansCorrect

Explanation

Section 54K(4) lets the committee approve the base plan only if it does not impair operational creditors' claims. Explanation II treats claims as impaired when full payment of confirmed claims is not provided. Under 54K(5)(b), the resolution professional must then invite competing plans. Approval, where permitted, needs not less than 66% of voting shares, not a simple majority.

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