Definition
A plan submitted by a resolution applicant for the revival of a corporate debtor — approved by the Committee of Creditors (66% vote) and the NCLT — which gives the corporate debtor to the resolution applicant in exchange for payment of the agreed amounts to creditors.
A Resolution Plan under Sections 30-31 of the IBC is the mechanism for rescuing a corporate debtor. A Resolution Applicant (typically an investor, strategic buyer, or competitor) submits a plan that: (a) provides for full payment of CIRP costs and insolvency resolution costs; (b) provides for payment to operational creditors to the extent they receive at least what they would receive in liquidation; (c) provides for payment to financial creditors (amount negotiated, typically a haircut from the full debt); (d) ensures ongoing management and operations of the corporate debtor. The plan must be approved by the CoC (66% vote), then by the NCLT — which checks legal compliance but not commercial wisdom. Once approved, the plan is binding on all stakeholders.
Statutory Definition
Section 30(2), Insolvency and Bankruptcy Code, 2016: 'The resolution professional shall examine each resolution plan received by him to confirm that each resolution plan — (a) provides for the payment of insolvency resolution process costs in a manner specified by the Board in priority to the repayment of other debts of the corporate debtor; (b) provides for the repayment of the debts of operational creditors in such manner as may be specified by the Board which shall not be less than the amount to be paid to the operational creditors in the event of a liquidation of the corporate debtor...'
Etymology & Origin
From 'resolution' (finding a solution, from Latin 'resolvere' — to untie, to resolve) + 'plan' (a scheme, from Latin 'planus' — flat, a plan). A 'resolution plan' is the scheme for 'resolving' (untying) the knot of the corporate debtor's financial distress.
Full Legal Analysis
Resolution Plan: Rescuing the Corporate Debtor
The resolution plan is the IBC’s preferred outcome — a new owner, new management, and new capital transforms the distressed company into a viable business. Creditors receive some recovery (though typically less than the full debt — a “haircut”); employees keep their jobs; suppliers and customers retain their relationships; and the going-concern value is preserved. The plan must balance all these interests within the framework of the IBC’s mandatory requirements.
The Waterfall: Minimum Payments
A resolution plan must comply with specific payment minimums: (a) CIRP costs: Paid in full, first. (b) Operational creditors: Receive at least what they would in liquidation (the liquidation value of their claim). (c) Workmen and employees: At least 24 months' dues paid. (d) Financial creditors: No mandatory minimum — their actual recovery depends on what the resolution applicant offers and whether the CoC (66%) accepts. Financial creditors typically take a significant haircut — recovering 50-60% of their admitted claims is considered a reasonable outcome in major CIRP cases.
Post-Approval: Clean Slate
Once the NCLT approves the resolution plan: (a) all claims of creditors (including those not members of the CoC) are extinguished to the extent addressed in the plan; (b) the corporate debtor gets a 'clean slate' — no pending claims, no litigation from pre-CIRP creditors; (c) the resolution applicant gets full ownership and management of the company; (d) the resolution plan is binding on all stakeholders — including dissenting CoC members. The clean slate principle was confirmed in Essar Steel (2019) — creating certainty for resolution applicants that they won't be followed by pre-CIRP creditor claims.
“A resolution plan is corporate redemption — the company, having failed financially, gets a second chance under new ownership. The plan must work for everyone: enough to satisfy creditors who must approve it, viable enough to attract the resolution applicant who funds it, and realistic enough to actually revive the business that everyone depends on.”
This Term in Indian Statutes
Insolvency and Bankruptcy Code, 2016, 2016
"The resolution professional shall examine each resolution plan to confirm that it provides for payment of insolvency resolution process costs in priority; repayment of operational creditors not less than liquidation value; and provides for the management of the affairs of the corporate debtor."
Resolution plan: CoC 66% approval + NCLT sanctioning; operational creditor minimum = liquidation value; clean slate post-approval (Essar Steel)
