Insolvency and Bankruptcy Code (IBC) aims to provide a time-bound and orderly process for resolving the financial distress of a corporate debtor. A crucial aspect of this process is the formulation and approval of a resolution plan, which must address the claims of various classes of creditors. Understanding how these different classes are treated is fundamental to comprehending the IBC's framework.

The IBC categorizes creditors into distinct classes based on the nature of their claims and their priority in the repayment hierarchy. This classification is vital because it dictates the order and extent to which their debts are to be satisfied in a resolution plan. The primary classes typically include:

• Secured Financial Creditors: Those who hold security interest over the assets of the corporate debtor.
• Unsecured Financial Creditors: Those who have lent money but do not hold any security interest.
• Operational Creditors: Those who have provided goods or services to the corporate debtor and have claims arising from such transactions.
• Government Dues/Statutory Dues: Claims by government bodies for taxes, duties, etc.
• Equity Shareholders: Owners of the company.

The IBC mandates that a resolution plan must provide for the payment of debts of operational creditors in cash, which shall not be less than the amount to be paid to such creditors in the event of liquidation of the corporate debtor. Financial creditors, both secured and unsecured, are also to be paid in accordance with their priority and the value of their security interest. The plan must also ensure that the order of priority is maintained, reflecting the waterfall mechanism established by the Code.

Secured financial creditors have a preferential claim over the specific assets pledged as security. A resolution plan must ensure they receive at least the value of their security interest. Unsecured financial creditors, lacking such specific security, are treated based on their proportion of the total unsecured debt. The plan aims to provide them with a recovery that is equitable relative to other unsecured creditors and, importantly, not less than what they would receive in liquidation.

Operational creditors are crucial for the continued functioning of a business. The IBC mandates that their claims must be settled in cash, with a minimum payout equivalent to their liquidation value. This provision aims to prevent operational creditors from being unfairly prejudiced. Similarly, statutory dues, such as taxes and other government levies, are also to be addressed in the plan, though their exact priority can be subject to specific legal interpretations and amendments.

The Committee of Creditors (CoC), comprising financial creditors, plays a pivotal role in evaluating and approving resolution plans. They assess the feasibility and viability of the proposed plan, ensuring it adequately addresses the claims of all creditor classes according to the IBC's provisions. The CoC's decision is paramount in moving the resolution process forward.

When formulating a resolution plan, several critical factors must be considered:

• Liquidation Value: The plan must ensure that no creditor class receives less than their liquidation value.
• Fairness and Equity: While priority is key, the plan should also aim for equitable treatment within each class.
• Feasibility and Viability: The proposed payments and restructuring must be realistic and sustainable for the corporate debtor.
• Compliance: Strict adherence to the provisions of the IBC and relevant regulations is mandatory.