Tribunal: Resolution Plan Converts Debt to Shares, Excludes Enforcement of Securities

The Tribunal held that the approval of the resolution plan effectively extinguished the unpaid debt by converting it into preference shares, thereby discharging the enforcement of excluded securities. The conversion of debt into preference shares rendered the excluded securities unenforceable. The dissenting financial creditor's rights were found to be subject to the majority decision of the Committee of Creditors, which approved the resolution plan. The Tribunal dismissed the application, stating that there was no remaining debt to enforce against the excluded securities.

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Issues Involved:

1. Enforceability of excluded securities and guarantees post-approval of the resolution plan.
2. Conversion of debt into preference shares.
3. Assignment of debt to a third party.
4. Rights of dissenting financial creditors.

Detailed Analysis:

1. Enforceability of Excluded Securities and Guarantees Post-Approval of the Resolution Plan:

The applicant, a financial creditor, raised a question of law regarding whether excluded securities, including guarantees, would subsist and could be enforced even if the underlying debt is converted into preference shares under the final resolution plan. The Tribunal found that the resolution plan, which was approved by 91.06% of the Committee of Creditors (CoC), proposed converting unpaid debt into non-convertible redeemable preference shares. This conversion effectively extinguished the debt, leaving no outstanding liability for enforcement against the excluded securities. The Tribunal concluded that the approval of the resolution plan ipso facto discharged the enforcement of excluded securities, as there was no realisable debt left.

2. Conversion of Debt into Preference Shares:

The resolution plan included a clause that any balance financial debt forming part of the admitted debt (unpaid debt) would be converted into non-convertible redeemable preference shares. The Tribunal noted that this conversion meant that the unpaid debt was extinguished and transformed into preference shares, leaving no outstanding liability for enforcement. The Tribunal held that the conversion of debt into preference shares subsumed the excluded securities, rendering them unenforceable.

3. Assignment of Debt to a Third Party:

The applicant also questioned whether guarantees would subsist and could be enforced if the debt is assigned to a third party under the resolution plan. The Tribunal observed that the revised resolution plan deleted the clause regarding the assignment of debt but retained the clause on the conversion of unpaid debt. The Tribunal held that since the unpaid debt was converted into preference shares, there was no remaining debt to be assigned or enforced against the excluded securities.

4. Rights of Dissenting Financial Creditors:

The applicant, holding an 8.94% share in the CoC, dissented against the approval of the final resolution plan. The Tribunal noted that the applicant's dissenting status entitled it to the rights available to dissenting financial creditors as per Section 53 of the Insolvency and Bankruptcy Code (IBC). However, the Tribunal emphasized that the majority decision of the CoC, which approved the resolution plan, was binding on all members, including dissenting creditors. The Tribunal dismissed the applicant's contention that the resolution plan took away its rights to enforce excluded securities, as the conversion of debt into preference shares left no realisable debt.

Conclusion:

The Tribunal dismissed the application, concluding that the excluded securities were subsumed in the definition of unpaid debt, which was extinguished and converted into preference shares. The Tribunal held that there was no outstanding liability for enforcement of the excluded securities, and the applicant, as a dissenting financial creditor, was bound by the majority decision of the CoC.

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