2021 (10) TMI 1034 - Tri - Insolvency and Bankruptcy

Tribunal Approves Resolution Plan with 100% Creditor Support, Resulting in Significant Haircut

The Tribunal approved the resolution plan under section 30(6) of the Insolvency and Bankruptcy Code, 2016, with 100% voting by the Committee of Creditors. ... Approval of resolution plan under Section 31 - Compliance with Section 30(2) and CIRP Regulations - Binding effect of approved resolution plan on stakeholders - Extinguishment of pre-plan claims including government/statutory authorities - Extinguishment of existing share capital on the effective date - Deemed shareholder/member approvals for restructuring - Resolution applicant to obtain statutory approvals from competent authorities - Cessation of moratorium upon approval of resolution planApproval of resolution plan under Section 31 - Compliance with Section 30(2) and CIRP Regulations - Resolution Plan approved under Section 31 of the IBC as complying with Section 30(2) and relevant CIRP Regulations. - HELD THAT: - The Tribunal examined the Resolution Plan submitted by the Resolution Professional and the certificate that the plan meets the requirements of Section 30(2) of the Insolvency and Bankruptcy Code, 2016 read with the CIRP Regulations. The Committee of Creditors had approved the plan with 100% voting share. The Tribunal observed that the Plan addresses settlement of claims, feasibility, viability, implementation procedure, appointment of person(s) to oversee implementation and contains an affidavit under Section 29A. On satisfaction that the plan complies with applicable statutory requirements, the Tribunal approved the Resolution Plan annexed to IA 197 of 2021. [Paras 18, 19]Resolution Plan approved and held to comply with Section 30(2) and relevant CIRP Regulations; IA 197 of 2021 allowed.Binding effect of approved resolution plan on stakeholders - Extinguishment of pre-plan claims including government/statutory authorities - Extinguishment of contingent/unconfirmed dues - Approved plan is binding on the corporate debtor and all stakeholders and extinguishes pre-plan claims, including those of government/statutory authorities and contingent/unconfirmed dues, to the extent provided in the plan. - HELD THAT: - The Tribunal held that upon approval the Resolution Plan becomes binding on the corporate debtor, its employees, members, creditors, guarantors and other stakeholders. It declared that after payment as per the plan, liabilities of stakeholders as provided in the plan shall stand permanently extinguished. The Tribunal further held that other claims, including those of Government/Statutory Authorities whether lodged during CIRP or not, and contingent or unconfirmed dues, shall stand extinguished to the extent covered by the approved plan. [Paras 21]Approved plan is binding and extinguishes pre-plan and contingent claims as provided in the plan.Extinguishment of existing share capital on the effective date - Deemed shareholder/member approvals for restructuring - Existing share capital of the corporate debtor shall stand extinguished on the effective date and the order deems that shareholder/member approvals required for restructuring have been obtained. - HELD THAT: - The Tribunal directed that on the effective date and with effect from the appointed date the entire existing share capital shall stand extinguished without any payment to existing shareholders, and the Resolution Applicant may issue new equity in accordance with the Companies Act, 2013. The Tribunal further held that all approvals of shareholders/members for restructuring as provided in the plan shall be deemed to have been obtained and this order will serve as evidence of required formalities under the Companies Act for such restructuring. [Paras 21]Existing share capital extinguished on effective date; shareholder approvals for restructuring deemed obtained.Resolution applicant to obtain statutory approvals from competent authorities - Cessation of moratorium upon approval of resolution plan - Implementation and procedural directions - Directions regarding statutory reliefs, procedural implementation and cessation of moratorium: applicants must approach competent authorities for reliefs; moratorium ceases from date of order; procedural steps for implementation to be carried out. - HELD THAT: - The Tribunal refused to grant blanket statutory waivers itself but granted liberty to the Resolution Applicant to approach competent authorities for concessions or reliefs, including tax authorities, who shall decide applications in accordance with applicable laws. The Tribunal directed that notwithstanding claims in the plan, the Resolution Applicant must obtain necessary approvals under law within prescribed periods. The order further provided procedural directions: on effectiveness the moratorium under Section 14 ceases, the RP must send copies of the order to participants and forward records to the IBBI, accounting entries shall be completed in accordance with accounting standards and the Companies Act, and management shall be handed to the Board nominated by the Resolution Applicant. [Paras 20, 21]Resolution Applicant to seek statutory approvals from competent authorities; moratorium ceases from date of this order; procedural directions for implementation issued.Final Conclusion: The Tribunal approved the Resolution Plan as compliant with the IBC and CIRP Regulations, held the approved plan binding on all stakeholders with specified extinguishment of claims and share capital, directed that statutory reliefs must be sought from competent authorities, ordered cessation of moratorium from the date of the order and issued procedural directions for implementation. Issues Involved:1. Approval of the resolution plan under section 30(6) of the Insolvency and Bankruptcy Code, 2016.2. Constitution and actions of the Committee of Creditors (COC).3. Valuation of the Corporate Debtor's assets.4. Extension of the Corporate Insolvency Resolution Process (CIRP) period.5. Publication and receipt of Expression of Interest (EOI).6. Approval and details of the resolution plan.7. Reliefs and concessions sought by the Resolution Applicant.8. Compliance with statutory requirements and procedural formalities.Issue-wise Detailed Analysis:1. Approval of the Resolution Plan:The application was filed by the Resolution Professional for the approval of the resolution plan under section 30(6) of the Insolvency and Bankruptcy Code, 2016 (IB Code) read with section 31 of the IB Code and Regulation 39(4) of the CIRP Regulations. The plan was approved by the COC with 100% voting.2. Constitution and Actions of the Committee of Creditors (COC):The Corporate Debtor was admitted into CIRP on 18.03.2020, and the IRP constituted the COC, comprising one Financial Creditor and one Operational Creditor. The COC resolved to appoint the IRP as the Resolution Professional and also decided to appoint valuers and a Chartered Accountant for asset valuation. The COC rejected the proposal for a transaction audit due to high costs.3. Valuation of Corporate Debtor's Assets:The registered valuers submitted a valuation report valuing the Corporate Debtor's assets at Rs. 4,16,763/- as fair value and Rs. 4,08,031/- as liquidation value.4. Extension of CIRP Period:The COC resolved to file an application for an extension of the CIRP period by three months and exclusion of 76 days due to the gap between the pronouncement and receipt of the order. This was allowed by the Authority, extending the CIRP by 90 days beyond 180 days and excluding 76 days.5. Publication and Receipt of Expression of Interest (EOI):The COC resolved to publish the EOI, which was published in two newspapers. One EOI was received from the Resolution Applicant, who submitted the resolution plan on 06.01.2021.6. Approval and Details of the Resolution Plan:In the fifth COC meeting, the resolution plan was approved with 100% voting. The total claim made by all claimants was Rs. 14.33 Crores, with a proposed payment of Rs. 1,620,667/-, resulting in a 98.7% haircut. The plan included payments to unsecured financial creditors, operational creditors, and shareholders, with additional funds to be infused by the Resolution Applicant.7. Reliefs and Concessions Sought by the Resolution Applicant:The Resolution Applicant sought various reliefs and concessions, including tax exemptions, waiver of claims by various authorities, and the ability to change the company's name and address. The Tribunal granted some reliefs and directed the Resolution Applicant to approach concerned authorities for others.8. Compliance with Statutory Requirements and Procedural Formalities:The resolution plan complied with all requirements of Section 30(2) of the IB Code and relevant CIRP Regulations. The Tribunal noted that the plan was feasible and viable, addressing issues that led to the insolvency and providing a future business plan to prevent recurrence. The plan included the appointment of the RP to oversee implementation and reconstitution of the Board of Directors.Conclusion:The Tribunal approved the resolution plan, making it binding on the Corporate Debtor and all stakeholders. The Resolution Applicant was granted liberty to approach competent authorities for further reliefs and concessions. The Tribunal issued several directions to ensure the effective implementation of the resolution plan and compliance with statutory requirements.