Resolution Plan and CoC Strategy Under IBC: What Creditors Should Know

Once a corporate insolvency resolution process is admitted, the centre of gravity shifts decisively from the tribunal to the Committee of Creditors. NCLT and NCLAT will police process and statutory compliance, but the commercial decision — whether a particular resolution plan is acceptable, at what valuation, with what haircuts, payable on what timeline — sits with the CoC. Creditors who do not understand this structural reality lose value.

This piece is for creditors who have just become members of a CoC, or who are considering whether to push for resolution rather than liquidation, or who are weighing whether to support, oppose or abstain on a resolution plan that is heading to vote.

Who sits on the CoC

The CoC is constituted by the IRP from financial creditors only. Operational creditors, however large, do not get voting rights unless their dues exceed 10 percent of total debt — and even then their participation is limited. This is a deliberate statutory choice under the IBC: financial creditors, who have historically priced and managed credit risk, are entrusted with the resolution decision.

Voting share is calculated on the basis of admitted financial debt. Related-party financial creditors are excluded from voting. Where there is dispute about quantum or related-party status, the IRP's call is provisional — the tribunal can revisit it, and frequently does, particularly where minority creditors challenge inflated insider claims.

What a Section 30 compliant plan looks like

Section 30(2) of the IBC sets out the mandatory contents of a resolution plan. The plan must provide for payment of insolvency resolution process costs in priority, payment of operational creditors in a manner not less favourable than what they would receive in liquidation under Section 53, payment of dissenting financial creditors at least the liquidation value attributable to them, management of the corporate debtor going forward, and implementation and supervision arrangements.

• Identity and eligibility of the resolution applicant — Section 29A is non-negotiable; an ineligible applicant defeats the entire plan even if commercially attractive
• Sources and certainty of funds — bank guarantees, performance security, escrow arrangements
• Haircut on financial debt — quantum, classes of treatment, and the rationale for differential treatment
• Operational creditor treatment — the Section 53 minimum is the floor, not the ceiling
• Employee dues — workmen's dues and salary arrears for the look-back period
• Statutory dues — GST, income tax, EPF, ESI — and their treatment in light of recent jurisprudence
• Implementation timeline, monitoring committee, and consequences of default in implementation

Section 29A and applicant eligibility

Section 29A excludes a wide class of persons from submitting resolution plans — undischarged insolvents, wilful defaulters, persons disqualified from being directors, persons connected to the corporate debtor's defaulting promoters, and any person whose plan would, on implementation, contravene specific statutory restrictions. The Supreme Court in Arcelor Mittal v. Satish Kumar Gupta gave the section a broad and purposive reading.

Eligibility is tested at the date of submission of the plan and continues through approval. The CoC and the IP must satisfy themselves on eligibility; the tribunal can look at it again at the approval stage. Plans that fall on Section 29A are usually fatal — there is no salvage available beyond a fresh round with a different applicant.

Commercial wisdom and the limits of judicial review

The doctrine of CoC commercial wisdom — clarified by the Supreme Court in K. Sashidhar and reaffirmed repeatedly — significantly insulates approved plans from judicial second-guessing on commercial terms. NCLT and NCLAT review compliance with Section 30(2), the eligibility of the applicant, and the procedural integrity of the CoC's voting; they do not sit as commercial appellate fora over haircuts.

This means a creditor who is unhappy with a haircut should oppose the plan inside the CoC, not afterwards at the tribunal. Once 66 percent of the CoC has approved a Section 30(4) compliant plan, the tribunal's discretion to refuse approval is narrow. Dissenting financial creditors are entitled to liquidation value but cannot block the plan.

Strategic considerations for financial creditors

Voting strategy in the CoC depends on three variables: the realistic resolution value relative to liquidation value, the certainty of implementation, and the tax and accounting consequences for your institution of writing off the haircut now versus later. We help creditor clients model these three variables before each vote, particularly the second — a beautifully priced plan that defaults six months into implementation is worse than a more conservative plan that performs.

Operational creditors with significant exposure should think about coalition-building. Where operational debt collectively exceeds 10 percent, group representation in the CoC becomes possible and affords meaningful voice. We have seen well-organised operational-creditor groups extract materially better treatment in plans, simply by being prepared, present, and credible.

Liquidation as the alternative

Where no resolution plan is approved within the 330-day window, or where the CoC resolves with 66 percent vote to liquidate, the corporate debtor enters liquidation under Section 33. Distribution follows the Section 53 waterfall — secured creditors who have not relinquished their security, then workmen, then secured creditors who relinquished, then employees, then unsecured financial creditors, then government dues, and finally operational creditors and equity.

For most operational creditors, liquidation is a near-zero recovery scenario. This is why a workable resolution plan, even with significant haircuts, is almost always commercially preferable. Pushing for liquidation as a tactical lever is rarely a winning move for operational creditors and usually a distraction.

If you are on a CoC, considering submitting a resolution plan, or assessing how an approved plan affects your recovery position, the early strategic decisions matter more than the litigation that may follow. Send us a confidential summary on WhatsApp at +91 63634 69138 — the corporate debtor, your debt class and quantum, and the stage of the process. An hour of clear thinking before the next CoC meeting is usually worth months of post-vote argument.