CS Professional · Corporate Restructuring, Valuation and Insolvency · Resolution Strategies
Sunrise Textiles Ltd is in a pre-packaged insolvency resolution process. The corporate debtor's base resolution plan pays operational creditors in full but reduces dues of financial creditors. Under the provisions of Section 54K, what should the committee of creditors (CoC) do to decide on this base plan?
The CoC may approve the base plan for submission to the Adjudicating Authority, because Section 54K(4) conditions approval only on not impairing operational creditors' claims. Impairment of financial creditors' dues does not bar approval or force a competing invitation.
- AIt may approve the base plan for submission to the Adjudicating Authority, since it does not impair operational creditors' claimsCorrect
- BIt must reject the base plan because financial creditors' claims are impaired
- CIt must invite prospective resolution applicants because financial creditors' claims are impaired
- DIt may approve the plan only if the Adjudicating Authority first permits it
Explanation
Section 54K(4) lets the CoC approve the base plan if it does not impair any claims owed to operational creditors. Here operational creditors are paid in full, so the plan is eligible for approval. Impairment of financial creditors' claims does not trigger the mandatory invitation of competing plans under 54K(5); that applies where the plan impairs operational creditors' claims or the CoC does not approve it.
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