Insolvency and Bankruptcy Code, 2016 (the Code)
Consent of members of Corporate Debtor not required for approval of the resolution plan or for its implementation.
It is clarified by the Ministry of Corporate Affairs (MCA) on 25th October 2017 (vide General Circular No. IBC/01/2017) that once the resolution plan is approved by the Adjudicating Authority i.e. National Company Law Tribunal (NCLT), no further approval of the resolution plan is required from the shareholders/members of the Corporate Debtor.
It has put to an end to an interpretation issue of Section 31(2)(e) of the Code. Once resolution applicant submits a resolution plan for a Corporate Debtor under Corporate Insolvency Resolution Process, the Resolution Professional (insolvency professional appointed by NCLT) need to examine the same and ensure that such plan conforms to the requirements stated in section 30(2) of the Code. One of the requirements is that the resolution plan ‘does not contravene any of the provisions of the law for the time being in force’. After the confirmation, the resolution professional need to present it to the Committee of Creditors (COC) for its approval (by a majority of 75% in value). And thereafter, COC approved resolution plan is to be submitted to NCLT for its final approval. The resolution plan once approved by NCLT, it is binding upon the Corporate Debtor, its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan (Section 31(1) of the Code).
An interpretation issue arose that when the resolution plan envisages, say, further issue of capital or reduction of capital, then whether the consent of members of Corporate Debtor as required under the Companies Act 2013 (for further issue/reduction of capital) is required to be obtained or not and if yes, at which stage? That is whether after/before approval of COC or after/before approval of NCLT?
It is clarified by MCA that consent of members of Corporate Debtor is not required either before approval of the resolution plan by COC/NCLT or thereafter, i.e. while its implementation.
This has brought much-needed clarity on the matter and brings a more effective way of implementing the resolution plan. Practically, if members approval is required for implementation of the approved resolution plan, then its like giving backdoor entry to promoter shareholders of Corporate Debtor, who may block or create impediments in implementation of the resolution plan, particularly wherein Corporate Debtor driven resolution process (u/s10 of the Code) or where resolution plan of the promoters of Corporate Debtor is not approved or the promoters of the Corporate Debtor do not agree/like the approved resolution plan.
This is a timely and welcome clarity from MCA, considering more and more resolution plans would be placed before NCLT for its final approval.