Voting Thresholds for Resolution Plan Approval under IBC
The Insolvency and Bankruptcy Code (IBC) of India provides a structured framework for resolving corporate insolvency. A critical stage in this process is the approval of a resolution plan by the Committee of Creditors (CoC). This approval is not a simple majority decision; it requires adherence to specific voting thresholds as mandated by the IBC. Understanding these thresholds is crucial for all stakeholders involved in the insolvency resolution process.
The Committee of Creditors (CoC)
The CoC is the primary decision-making body for the resolution of a corporate debtor. It comprises financial creditors of the corporate debtor. The voting power of each member in the CoC is proportionate to the amount of their financial debt. This ensures that those with a larger financial stake have a greater say in the resolution process.
Key Voting Thresholds for Plan Approval
Implications of the 66% Threshold
The 66% voting threshold has several significant implications for the resolution process:
- Encourages Consensus Building: It compels resolution applicants and the CoC to engage in extensive negotiations and modifications to ensure the plan is acceptable to a substantial majority.
- Protects Minority Creditors: While a supermajority is required, it doesn't mean a single dissenting creditor can block a plan. However, it does give significant weight to the collective voice of the majority.
- Impact on Plan Viability: Plans that are perceived as unfair or unviable by a large segment of creditors are unlikely to meet this threshold, leading to potential liquidation.
- Role of Operational Creditors: While the CoC primarily consists of financial creditors, operational creditors' claims are also considered. Their views, though not directly voting members of the CoC, can influence the financial creditors' decisions.
Think of the 66% threshold as a 'super-majority' – it's more than just a simple majority, requiring a strong consensus to pass.
Approval by the Adjudicating Authority
Once a resolution plan is approved by the CoC with the requisite 66% voting power, it is then submitted to the Adjudicating Authority (the National Company Law Tribunal or NCLT). The NCLT's role is to ensure that the plan meets the requirements of Section 30(2) of the IBC, which includes provisions for the payment of debts of operational creditors and other conditions. The NCLT does not re-evaluate the commercial wisdom of the CoC but ensures legal compliance and fairness.
66% of the voting power of the financial creditors who are members of the CoC.
Amendments and Judicial Interpretations
The IBC has seen several amendments and judicial pronouncements that have clarified or reinforced the voting thresholds. For instance, the Supreme Court has consistently upheld the commercial wisdom of the CoC and the sanctity of the 66% threshold, emphasizing that the NCLT should not interfere with the CoC's decision unless there are clear legal infirmities or the plan is against public interest. Understanding these judicial interpretations is vital for navigating complex insolvency cases.
The process of resolution plan approval involves a clear sequence of events. First, a resolution applicant submits a plan. Then, the resolution professional presents it to the Committee of Creditors (CoC). The CoC, comprising financial creditors, votes on the plan. A minimum of 66% of the voting power of the CoC is required for approval. If approved by the CoC, the plan is then submitted to the Adjudicating Authority (NCLT) for final approval, provided it meets the requirements of Section 30(2) of the IBC. The NCLT's role is primarily to ensure legal compliance and fairness, not to second-guess the commercial wisdom of the CoC.
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Learning Resources
The official source for the Insolvency and Bankruptcy Code, 2016, including all amendments. Essential for understanding the legal framework and specific sections related to voting thresholds.
Provides access to regulations and circulars issued by the Insolvency and Bankruptcy Board of India (IBBI), offering detailed procedural guidance and interpretations.
Access to Supreme Court judgments, which are crucial for understanding judicial interpretations and precedents set regarding resolution plan approval and voting thresholds.
The official portal for the NCLT, where one can find orders, judgments, and information related to cases adjudicated under the IBC.
A detailed blog post explaining the IBC framework, including the roles of various committees and the approval process for resolution plans.
This article breaks down the resolution process under IBC, specifically highlighting the voting thresholds required at different stages, including plan approval.
An insightful article discussing the powers and responsibilities of the CoC, with a focus on their decision-making authority, including plan approval.
A practical guide that demystifies the IBC for various stakeholders, offering clarity on critical aspects like voting rights and plan approval.
A video explaining the resolution process under the IBC, which can provide a visual and auditory understanding of the steps involved, including voting.
Provides a general overview of the IBC, its history, objectives, and key provisions, which can serve as a foundational resource.