Resolution plan approval threshold and going-concern sale during liquidation under insolvency law

A resolution plan under the Insolvency and Bankruptcy Code, 2016 cannot be confirmed unless it secures the statutory voting share required from the Committee of Creditors, and the plan here failed on that ground. As a result, the insolvency resolution process failed and liquidation followed under the Code. Even so, the liquidation framework allowed the corporate debtor's business to be offered first as a going concern, because continued operation during liquidation may preserve employment and improve value realisation. The liquidator was therefore directed to attempt an initial going-concern sale for a limited period before resorting to the prescribed liquidation sale of assets.

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Issues: (i) Whether the resolution plan approved by the Committee of Creditors could be accepted under the Insolvency and Bankruptcy Code, 2016. (ii) Whether, after rejection of the resolution plan, the corporate debtor should be put into liquidation with an opportunity to sell the business as a going concern.

Issue (i): Whether the resolution plan approved by the Committee of Creditors could be accepted under the Insolvency and Bankruptcy Code, 2016.

Analysis: The approved plan had not secured the statutory voting share required for approval by the Committee of Creditors. The plan was therefore found not to satisfy the requirements for approval and could not be placed for confirmation in the manner contemplated by the Code.

Conclusion: The resolution plan was rejected and the insolvency resolution process failed.

Issue (ii): Whether, after rejection of the resolution plan, the corporate debtor should be put into liquidation with an opportunity to sell the business as a going concern.

Analysis: Once the resolution process failed, liquidation followed under the Code. At the same time, the corporate debtor was still operational, and the liquidation framework permitted sale of assets by slump sale or as a going concern. The Court relied on the liquidation regulations and the principle that continuation of the business during liquidation can preserve employment and better realise value for stakeholders.

Conclusion: Liquidation was ordered, but the liquidator was directed to first to sell the corporate debtor as a going concern for a limited period before proceeding with sale of assets in the prescribed liquidation mode.

Final Conclusion: The proceeding resulted in liquidation of the corporate debtor, with a limited direction to attempt sale of the undertaking as a going concern in the first instance.

Ratio Decidendi: A resolution plan that does not secure the statutorily required approval cannot be confirmed, and upon failure of the resolution process liquidation follows, while the liquidation framework may still permit an initial sale of the business as a going concern where such course is consistent with the Code and regulations.

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