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

Sunrise Textiles Ltd of Surat has a resolution plan approved by its committee of creditors. The Adjudicating Authority is satisfied that the plan meets the requirements of section 30(2) and has provisions for effective implementation. What is the legal effect of its order approving the plan?

An approved resolution plan binds the corporate debtor, its employees, members, creditors (including the Central Government, State Governments and local authorities owed statutory dues), guarantors and other stakeholders. It is not limited to creditors who voted in favour, and no Board approval is needed for it to bind.

  1. AThe plan binds only the financial creditors who voted for it
  2. BThe plan binds the corporate debtor, its employees, members, creditors including statutory authorities, guarantors and other stakeholdersCorrect
  3. CThe plan binds only the corporate debtor and the resolution applicant
  4. DThe plan binds the parties only after the Board approves it

Explanation

Section 31(1) provides that an approved resolution plan is binding on the corporate debtor and its employees, members, creditors (including the Central Government, State Governments and local authorities owed statutory dues), guarantors and other stakeholders. Limiting it to voting financial creditors is wrong because dissenting creditors and statutory authorities are bound too.

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