Resolution plan approval must reflect stakeholder balance and going-concern value before nil treatment of operational creditors can stand

A resolution plan under the Insolvency and Bankruptcy Code cannot rest on commercial wisdom alone; it must also show due consideration of value maximisation, preservation of the corporate debtor as a going concern, and balancing the interests of all stakeholders, including operational creditors. Where a plan grants nil payment to operational creditors, approval may be unsustainable if the record does not reflect application of these statutory parameters. On the material before it, the committee of creditors' approval did not demonstrate such consideration, so the approval order was set aside and the matter remitted for reconsideration in accordance with the Code and applicable regulations.

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Issues: Whether approval of a resolution plan granting nil payment to operational creditors, without reflecting due consideration of the corporate debtor as a going concern and of the interests of all stakeholders, could be sustained.

Analysis: The approval of a resolution plan by the committee of creditors is protected by commercial wisdom, but judicial review remains available to test whether the plan satisfies the requirements of the Insolvency and Bankruptcy Code and the applicable regulations. The governing principles require that the resolution process take into account maximisation of value of the assets of the corporate debtor, preservation of the corporate debtor as a going concern, and balancing the interests of all stakeholders, including operational creditors. A resolution plan that results in nil treatment to operational creditors may not be accepted if the record does not show that these statutory parameters were considered while approving the plan. On the material before it, the decision of the committee of creditors did not reflect such consideration, and the approval order therefore could not be sustained.

Conclusion: The approval of the resolution plan was set aside and the matter was remitted for reconsideration by the committee of creditors in accordance with the statutory parameters.

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