Regulatory Alert: Deemed approval of shareholders/ members for a resolution plan under the Insolvency and Bankruptcy Code, 2016
26 October 2017
The Ministry of Corporate Affairs (‘MCA’) vide a circular dated 25 October 2017 has clarified that approval of shareholders/ members of the corporate debtor/ company is not required for any actions contained in the resolution plan which would normally require specific approval of shareholders/ members under provisions of Companies Act, 2013 (‘Cos Act’) or any other law.
The summarised version of the MCA circular is as follows:
There is a specific requirement under the Insolvency and Bankruptcy Code, 2016 (‘the Code’) stating that the Resolution Professional (‘RP’) to confirm that each resolution plan received by him/ her does not contravene any of the provisions of the law for the time being in force.
Provisions of the Code
The provisions of the Code provide a detailed procedure from the time of receipt of resolution plan by the RP to its approval by the National Company Law Tribunal (‘NCLT’) and there is no specific requirement for obtaining approval of shareholders/ members of the corporate debtor/ company during this process.
The NCLT approved resolution plan shall be binding on the corporate debtor/ company and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan.
Once a resolution plan is approved by the NCLT, approval of shareholders/ members of the corporate debtor/ company for any action contained therein is deemed to have been given.
The clarification comes against the backdrop of concerns in possible scenarios where certain promoters of a company could hinder the Corporate Insolvency Resolution Process (‘CIRP’). The purpose as mentioned in the MCA circular, is to prevent approval of resolution plans which are not legally implementable. Therefore, the requirement of the Code is to ensure that the resolution plan considered and approved is complaint with the provisions of the applicable laws and therefore is legally implementable.
The MCA circular seeks to provide a resolution in a time-bound manner and is important since a significant number of lenders are seeking quick relief under the Code.
It is pertinent to note that the MCA circular does not provide a blanket relief from complying with the provisions of various laws such as the exchange control regulations (viz. ‘Foreign Exchange Management Act, 1999’), stamp duty laws, etc. The onus of compliance with other laws remains with the RP.