2026 (3) TMI 209 - AT - IBC

Operational Creditor Payment Comparison: employees satisfy Section 30(2)(b) when plan payments exceed liquidation entitlement and unsecured creditor percentage.

Interprets the mandate that operational creditors must receive not less than the higher of their liquidation entitlement or the percentage payable to ... Payment to operational creditors under Section 30(2)(b) - compliance with court-recorded undertaking regarding employees' twelve months' entitlement - fair and equitable distribution. Compliance with court-recorded undertaking regarding employees' twelve months' entitlement - HELD THAT:- The Adjudicating Authority's order of 05.12.2025 recorded that the Resolution Plan provides for payment to employees to the extent of the higher of (i) twelve months' entitlement or (ii) the percentage payable to unsecured financial creditors. The Tribunal examined the admitted position in the pleadings that unsecured financial creditors are to receive 0.96% of their admitted claims and noted the Resolution Plan earmarks an overall amount for employees which, on the parties' own figures, yields a pay-out to the employees that exceeds the percentage payable to unsecured financial creditors. On that basis the Tribunal concluded that the pay-out under the Resolution Plan conforms with the undertaking recorded on 05.12.2025 and that there was no breach of the recorded statement. [Paras 7, 11] The pay-out under the Resolution Plan does not violate the undertaking recorded on 05.12.2025 and requires no interference. Payment to operational creditors under Section 30(2)(b) - HELD THAT: - The Tribunal considered the financial structure of the Resolution Plan against Section 30(2)(b), noting that the total realisable amount in the plan and the admitted claims of secured financial creditors result in a liquidation value for operational creditors that is nil. Section 30(2)(b) entitles operational creditors to receive at least what they would obtain on liquidation or under the alternative distribution; the Resolution Plan earmarks an aggregate sum for employees and, given the admitted liquidation scenario and the comparative percentages before the Tribunal, the proposed distribution to employees is held to meet the statutory floor. Accordingly, there was no legal infirmity in the Adjudicating Authority's approval of the plan under Section 30(2)(b). [Paras 10, 11] The Resolution Plan complies with the requirements of Section 30(2)(b) as regards operational creditors and no interference is warranted. Final Conclusion: The Tribunal finds no merit in the challenge: the pay-out to employees under the approved Resolution Plan conforms with the court-recorded undertaking and with Section 30(2)(b); the impugned order approving the Resolution Plan is therefore upheld and the appeal is dismissed. Issues: Whether the Adjudicating Authority's approval of the resolution plan complied with the requirement that operational creditors (employees) receive not less than the higher of (i) their liquidation entitlement or (ii) the percentage payable to unsecured financial creditors, and whether the order dated 05.12.2025 recording the undertaking regarding employees' payout was contravened.Analysis: The resolution plan earmarked a fixed aggregate amount for employees and proposed payments which, when compared with amounts payable to unsecured financial creditors under the plan, resulted in employees receiving a higher percentage than unsecured financial creditors. The admitted liquidation value of operational creditors was nil given the insufficiency of the plan consideration against secured creditors' claims. The relevant statutory benchmark is the requirement in Section 30(2)(b) of the Insolvency and Bankruptcy Code that operational creditors be paid not less than the higher of (i) the amount payable in liquidation or (ii) the amount that would be paid if distribution followed the priority in section 53. The order recorded on 05.12.2025 stated that employees' payout would be the higher of twelve months' entitlement or the percentage payable to unsecured financial creditors; the practical application requires comparison of actual percentages under the resolution plan and liquidation realizations. The figures on record show unsecured financial creditors were to receive approximately 0.96% of their claims while employees were allocated amounts greater than that percentage and greater than their liquidation entitlement (which was nil). The undertaking recorded on 05.12.2025 is therefore satisfied when assessed by the comparative payout test mandated by Section 30(2)(b). No valid ground was established for interfering with the approval of the resolution plan.Conclusion: Appeal dismissed; the approval of the resolution plan is in compliance with Section 30(2)(b) and the 05.12.2025 undertaking was not contravened. Ratio Decidendi: Where a resolution plan allocates payments such that operational creditors receive a percentage higher than that payable to unsecured financial creditors and their liquidation entitlement is nil, the requirement of Section 30(2)(b) that operational creditors receive not less than the higher of liquidation entitlement or the percentage payable to unsecured financial creditors is satisfied.