122 Lesson 5 • PP-IL&P

INTRODUCTION
The legislative framework in India for insolvency and bankruptcy proceedings provides for a wide range of resolution
measures, viz. re-organisation by way of a merger or amalgamation, acquisition of control and change of management,
demerger, slump sale and reconstruction or financial, capital and business/ operational restructuring and as such a
resolution strategy may consist of one or more of such measures and/or any measure other than the said measures.
Failure to reach an understanding/resolution with the creditors under the Code could lead to liquidation of the
corporate debtor.
The procedure for restructuring encompasses
Part II of the Insolvency and Bankruptcy Code, 2016 schemes of mergers, amalgamations, demergers,
deals with the insolvency resolution and liquidation transfer/ sale of assets, restructuring of capital
for corporate persons. Section 4 of the Insolvency and by way of cancellation/ delisting or any other
Bankruptcy Code, 2016 provides that Part II of the Code modification in share capital, and restructuring
shall apply to matters relating to the insolvency and of debts by ways of satisfaction or modification of
liquidation of corporate debtors where the minimum security charge/ interest as suggested in Regulation
amount of the default is one crore rupees. 37 of the Insolvency and Bankruptcy Board of
Part II of the Insolvency and Bankruptcy Code, 2016 lays India (Insolvency Resolution Process for Corporate
down the following two independent stages: Persons) Regulations, 2016 (CIRP Regulations)
by way of which the liabilities of the distressed
(i) Corporate Insolvency Resolution Process [Sections companies can be restructured and the state of
4 and 6 to 32] and insolvency can be resolved. In the event of initiation
(ii) Liquidation [Sections 33 to 54] and Voluntary of a Corporate Insolvency Resolution Process against
Liquidation [Section 59] the Corporate Debtor under IBC 2016, the Resolution
Professional shall invite resolution plans from the
Chapter II of Part II deals with corporate insolvency
prospective resolution applicants, subject to the
resolution process while Chapter III together with
compliance of the conditions as laid down under
Chapter V of Part II governs the liquidation process for
Section 30(2) of the IBC, 2016 read with Regulation
corporate persons.
38 of the CIRP regulations.
Issuance of securities of corporate debtor in exchange for claims/ interests (of the creditors) can be used as a tool for
restructuring in the resolution plans which has also been duly recognized/provided for in restructurings suggested
under Regulation 37 of the CIRP regulations that may be submitted by the resolution applicants to the Resolution
Professional for onward consent of the Committee of Creditors and thereafter the approval of the adjudicating
authority. The same is done to bring the debt to a sustainable level either by waiver of excess debt or conversion into
equity, or a combination of both.
Apart from the above, the Asset Reconstruction Companies (ARCs) set-up under the provisions of SARFAESI Act,
2002 may also acquire the debts of the corporate debtor from the lending banks/ Financial Institutions (FIs) and
subsequently restructure the same in post discussions and arrangement with the corporate debtor. The provisions of
SARFAESI Act, 2002 also empower the lenders/ARCs to effect a change in management as a restructuring mechanism
which can be achieved by applying to become resolution applicant or partnering with resolution applicant.
Nonetheless, a resolution applicant shall opt for corporate restructuring in the CD (which might be mix of different
methods of operational and financial restructuring) to revive it and improve its further financial performance. The
Code has not specifically defined measures of restructuring for the resolution however the resolution applicant may
introduce the required measures as per the situation of the corporate debtor.

CORPORATE RESTRUCTURING
Corporate restructuring is an inorganic business strategy where one or more aspects of a business are redesigned
to improve commercial efficiency, manage competition effectively, drive faster pace of growth, ensure effective
utilization of resources, and fulfillment of stakeholders’ expectations. It serves different purposes for different
companies at different points of time and may take up various forms.
Restructuring typically occurs to address challenges or it can be driven by the necessity to make financial adjustments
to its assets and liabilities. Mergers, amalgamations, demergers, or reconstruction of capital structure are various
forms of corporate restructuring exercises. The purpose of each of these restructuring exercises may be different
but each of these exercises attempts to bring in more efficiency in the system so that the distress can be addressed.
 Lesson 5 • Resolution Strategies 123

The Insolvency and Bankruptcy Board of India (‘IBBI’) has made the IBBI (Insolvency Resolution Process for
Corporate Persons) Regulations, 2016 to regulate the insolvency resolution Process for Corporate Persons.
Corporate restructuring process in India under Insolvency and Bankruptcy Code, 2016 may be governed by the
provisions of the Regulation 37 of CIRP regulations; however, the Code is silent on the measures of the resolution
and restructuring of the corporate debtor. Regulation 37, as substituted vide Notification No. IBBI/2017-18/GN/
REG024, dated 6th February, 2018 (w.e.f. 06 February 2018), provides that:
A resolution plan shall provide for the measures, as may be necessary, for insolvency resolution of the corporate debtor
for maximization of value of its assets including but not limited to the following:

(a) transfer of all or part of the assets of the corporate debtor to one or more persons;
(b) sale of all or part of the assets whether subject to any security interest or not;
ba) restructuring of the corporate debtor, by way of merger, amalgamation and demerger;
(c) the substantial acquisition of shares of the corporate debtor, or the merger or consolidation of the corporate
debtor with one or more persons;
ca) cancellation or delisting of any shares of the corporate debtor, if applicable;
(d) satisfaction or modification of any security interest;
(e) curing or waiving of any breach of the terms of any debt due from the corporate debtor;
(f) reduction in the amount payable to the creditors;
(g) extension of a maturity date or a change in interest rate or other terms of a debt due from the corporate
debtor;
(h) amendment of the constitutional documents of the corporate debtor;
(i) issuance of securities of the corporate debtor, for cash, property, securities, or in exchange for claims or
interests, or other appropriate purpose;
(j) change in portfolio of goods or services produced or rendered by the corporate debtor;
(k) change in technology used by the corporate debtor;
(l) obtaining necessary approvals from the Central and State Governments and other authorities.

The suggested measure provided in clause (ca) has been inserted by Notification No. IBBI/2018-19/GN/ REG031,
dated 03rd July, 2018 (w.e.f. 04.07.2018) and clause (ba) has been inserted by Notification No. IBBI/2019-20/
GN/REG052, dated 27th November, 2019 (w.e.f. 28.11.2019). These insertions clearly provide that the resolution
applicant can opt for necessary restructuring strategy to alter and reconstruct the corporate structure of the
corporate debtor to improve the efficiency and resolve the insolvency.
Corporate restructuring may be broadly categorized as follows:

Internal restructuring External restructuring

These categories are briefly explained below.

1. External restructuring
It consist of merger and amalgamation of one company with another or demerger of one or more undertakings
of a company into another company, acquisition of controlling stake in a company through purchase of majority
stake in it, conversion of debt into equity, etc. The same are briefly explained hereunder.
(i) Restructuring through mergers, amalgamation and demerger
A company is merged, amalgamated or demerged to achieve improvement in efficiency in operational
and financial performance of the company. In the insolvency proceedings of a corporate debtor, the
resolution plan may provide for merger, forward or reverse of the corporate debtor with the resolution
applicant (company) or any of its group companies to maximize the utilization of the assets of the
corporate debtor. Similarly, the resolution applicant may provide to demerge one or more units of the
corporate debtor to gain operational and financial efficiency.
124 Lesson 5 • PP-IL&P

In case of mergers/amalgamations or demergers, the consideration is in the form of equity shares in

the merged/transferee entity, which are issued to the shareholders of the merging/transferor company
based on the share exchange ratio determined on the basis of valuation of equity shares of each
company. The funds available in the transferee company or its cash flow for the period after the merger/
amalgamation or demerger is used for meeting capital expenditure and working capital requirements of
the entity which has merged or transferred and for resolving the debt of the said entity. In addition, the
entity, which has merged, gets the benefit of resources of the transferee company including its brands,
goodwill, managerial inputs, technology, funds, expert manpower, etc. and the same helps it to improve
its profitability. The restructuring through mergers /amalgamation and demerger may, in addition,
require financial and operational restructuring, in order to make an effective resolution of the insolvency
of the transferor entity.
(ii) Restructuring through acquisition of controlling stake/ purchase of shares
The resolution applicant may, through a resolution plan, acquire the controlling stake in the corporate
debtor by either reducing or cancelling its existing paid up share capital and recapitalizing it by infusing
further equity capital. Alternatively the resolution applicant may acquire the existing equity share capital
of the company partly or fully by making payment of some nominal consideration to the shareholders of
the Corporate debtor and for meeting the requirement of funds of the Corporate debtor, the resolution
applicant may infuse the funds partly in equity or partly in the form of debt or fully in the form of debt
only. The management of the corporate debtor including its board is also changed by the resolution
applicant by appointing his nominee directors on the board and by appointing other key managerial
personnel.
(iii) Restructuring through conversion of debt for issuance of securities
It can be understood that the insolvency of a
corporate debtor is mainly due to default in its debt, The same kind of restructuring was used in
whether financial debt or operational debt, where acquisition of Bhushan Steel limited (after
it could not fulfill its repayment obligation. The acquisition by Tata Group, it is named as
Resolution applicant on the basis of the assessment Tata Steel BSl Limited, (“TBSL”) by resolution
of the corporate debtor, may propose the conversion applicant Bamnipal Steel Limited (subsidiary
of debt of the corporate debtor into securities of the of Tata Steel limited). Pursuant to the
Corporate debtor issued in favor of the creditors, Resolution Plan, Bamnipal Steel Limited
thereby, changing the nature and terms of the debt. subscribed to 72.65% of the equity share
The said securities may be in the form of equity capital of TBSL for an aggregate amount of
share, preference share or debentures /bonds. As a Rs.158.89 crore and provided additional
result of the said restructuring, the existing debt of funds aggregating to Rs.35,073.69 crore
the Corporate debtor is reduced to a sustainable level to TBSL by way of debt/convertible debt,
by conversion of the same into equity and by waiving which were utilized to repay the dues of the
substantial part of the unsustainable debt. Corporate debtor.

2. Internal restructuring
These two restructurings can be used simultaneously as required to resolve the insolvency of a corporate
debtor. Following explanation can derive the need of the two restructurings in the resolution of the corporate
debtor:
In the insolvency proceedings, the restructuring of corporate debtor is achieved through approval of the
Resolution Plan by the adjudicating authority subsequent to the approval by its Committee of the Creditors.
The resolution plan should opt for restructuring required for the corporate debtor depending upon various
factors of the corporate debtor such as nature and size of business, industry, market size and situation, the
financial creditors, internal policies, business relationship with the vendors and customers, applicable laws,
etc. A resolution applicant is required to analyse all these factors and prepare/ formulate the resolution
plan containing the appropriate restructuring strategies to take over the corporate debtor and to resolve
its insolvency. As mentioned in earlier sections, the Regulation 37 of CIRP Regulations briefly lays down the
external as well as internal restructuring strategies that may be opted by the resolution applicants. The internal
restructuring includes operational and financial restructuring. These are discussed in detail as follows:
Lesson 5 • Resolution Strategies 125

(i) Operational restructuring

Operational Restructuring involves improving the operational efficiency of the corporate debtor so
as to increase its business receipts and profitability. It may consist of creation of new departments to
serve growing markets or downsizing or eliminating departments to conserve overheads. A company
may undertake restructuring to focus on a particular market segment leveraging its core competencies
or may undertake restructuring to make the organization lean and efficient. This type of restructuring
affects employees and involves layoffs or collaboration with third parties to upgrade skills and technical
know- how.
In the corporate insolvency resolution process of the corporate debtor, the resolution applicant is
advised to present their strategy backed by a business plan where the Operational restructuring to be
introduced by it (resolution applicant) to resolve the insolvency state of the corporate debtor. Regulation
37 also suggests different methods of the Operational restructuring to bring out the efficiency of the
corporate debtor. Operational restructuring in the corporate debtor undergoing corporate insolvency
resolution process may be made through change in portfolio of goods or services produced or rendered
by it, change in technology used by it or introducing any other changes in the operational structure as
may be required.
Additionally, the Regulation 38 of CIRP Regulations also advocates a detailed business plan where
Regulation 38(3), which was amended, by Notification No. IBBI/2018-19/GN/REG031, dated 03rd July,
2018 (w.e.f. 04-07-2018) provides for the following:

“A resolution plan shall demonstrate that –

(a) it addresses the cause of default;
(b) it is feasible and viable;
(c) it has provisions for its effective implementation;
(d) it has provisions for approvals required and the timeline for the same; and
(e) the resolution applicant has the capability to implement the resolution plan”

It clarifies that the Resolution Plan in itself should be complete in every aspect by detailing Corporate
restructuring including operational restructuring as required, to resolve the insolvency of the corporate
debtor. It is, thus, an essential element of the resolution Plan to provide for the future way forward for
the working of the corporate debtor.
(ii) Financial restructuring
Financial restructuring is the process of reorganizing the financial structure, which primarily comprises
of equity capital and debt capital. There may be several reasons (financial and non-financial) that trigger
the need for financial restructuring. Financial restructuring is undertaken either because of compulsion
(to recover from financial distress) or as part of company’s financial strategy to achieve better financial
performance.
Financial restructuring is done for various business reasons such as to overcome poor financial
performance, to gain market share, or to seize emerging market opportunities. Financial restructuring
undertaken to recover from financial distress involves negotiations with various stakeholders such as
banks, financial institutions, creditors in order to reduce liabilities.

Corporate financial restructuring involves a considerable change in the company’s financial structure
and is undertaken for various business reasons such as:
To overcome To address To regain To seize To seize Development
poor financial external market share emerging emerging of core
performance competition market market competencies
by reduction opportunities opportunities
of debt and
interest cost
126 Lesson 5 • PP-IL&P

The two components of financial restructuring are:

• Debt Restructuring (restructuring of the debt being secured long-term borrowing, long-term unsecured
borrowings, short term borrowing)
• Equity Restructuring (alteration or reduction or conversion of capital, buy-back).

DEBT RESTRUCTURING
Debt restructuring is the process of reorganizing the whole debt capital of the company in negotiation with bankers,
creditors, vendors to the terms to favor in improving the financial performance of the company. Debt capital of the
company includes secured long term borrowing, unsecured long- term borrowing, and short term borrowings. Debt
restructuring involves a reduction of debt and an extension of payment term or change in terms and conditions. Debt
restructuring is more commonly used as a financial tool than compared to equity restructuring.
The resolution plan provides for restructuring of debt of the corporate debtor by different ways which include
payment of their dues. These are briefly detailed as follows:
(a) Modification in payment period, where the resolution
applicant may propose for partial upfront/ immediate Restructuring includes alteration of (a)
payment of the claims of the financial creditors and repayment period, (b) repayable amount, (c)
balance in a period that is acceptable to them. Presently, the amount of installments,
the financial creditors depending upon the situation of (d) rate of interest; rollover of credit
the corporate debtor may agree for such restructuring facilities, sanction of additional credit
however, it is desirable by Financial Creditors to get most facility, enhancement of existing credit limits,
of the payment upfront as their dues had not been paid/ compromise settlements etc.
honored by the corporate debtor for long which led to the
initiation of the CIRP.
(b) Conversion of the debt in some other instrument where the resolution applicant proposes to convert the debt
or part of debt in equity or some other instruments such as redeemable debentures/ preference shares or
optional convertible debentures/ preference shares etc. this restructuring may provide the corporate debtor
with a feasible and viable manner to honor its obligations and it may provide the financial creditors with a
safer and faster way to get the payment of their dues. In case of insolvent companies, however, the lenders may
not be interested in converting the entire amount of their debt into equity and that they insist for the payment
of the settlement amount over a very short period of time say from three months to one year and in addition
to the said payment, they may agree for accepting some percentage of restructured equity share capital of the
Corporate debtor, so that in case the Corporate Debtor revives and starts making profits, they may offload their
equity and compensate them for the loss /sacrifice they have made while settling with the Corporate Debtor.
(c) Waiver of part of the principal, interest or other charges where the resolution applicant proposes for waiver
for outstanding principal, interest and other charges, which in his opinion is not sustainable. the resolution
applicant proposes to pay the agreed settlement amount after waivers as above said over a short period of time
and in addition accept some percentage of the restructured equity capital of the Corporate debtor.
(d) Modification in security of the secured financial creditors of the corporate debtor can also be used to restructure
the debt to resolve its insolvency. The securities may be offered to be disposed off / released to discharge the
entire or part of the claims of the financial creditors. The resolution applicant may bring in another financial
partner/ investor for infusion of funds whiles the some or the total securities held by the Financial Creditors
may be released in the favor of the new investor.
(e) Modification in credit limits may also be introduced through resolution plan where the fund based and non-
fund based credit facilities are restructured and the credit limits are modified based on the actual requirement
of the corporate debtor post resolution. Continuation of the credit limits, however, depends upon the
creditworthiness of the resolution applicant.
(f) Restructuring of secured long-term borrowings – it is undertaken for reducing the cost of capital, improving
liquidity and increasing the cash flow and is effected by making the modifications, conversion etc. as stated
above.
Lesson 5 • Resolution Strategies 127

(g) Restructuring of unsecured long-term borrowing – it depends on the type of borrowing which can be in
form of public deposits, private loans (unsecured), unsecured bonds or debentures. Here also, objective is to
reduce the interest cost, synchronization of the cash inflow and outflow by changing existing dues and /or the
repayment period etc. The said restructuring also involves modification conversion etc. as stated above.
(h) Restructuring of short-term borrowings – these borrowings are restructured by converting some part of them
as long term, reducing interest rate and /or existing dues and also by renegotiating the existing terms.

Until recently, there had been several debt restructuring mechanisms such as framework for revitalizing
distressed assets, Corporate debt restructuring Scheme (CDR), the Joint lenders’ Forum (JLF), Flexible
Structuring of existing long term Project loans, Strategic debt restructuring Scheme (SDR), Change in
Ownership outside SDR, and Scheme for Sustainable Structuring of Stressed assets (S4A). These schemes,
based on various circulars and guidelines issued by the Reserve Bank of India (RBI), were used as a tool for
restructuring the debt of a Corporate Debtor.
In order to harmonise and simplify the framework for the resolution of stressed assets, the Reserve Bank of
India (RBI), vide a circular dated 07.06.2019 has withdrawn these schemes. The Joint Lenders’ Forum (JLF),
an institutional mechanism for resolution of stressed accounts, also stands discontinued. Therefore, before
initiating insolvency proceedings against the corporate debtor, the banks/ financial institutions are required
to recourse the formal restructuring as per the guidelines issued in the circular by RBI on 07.06.2019. The
framework as provided by the RBI through circular issued on 07.06.2019; provides the procedure for debt
restructuring of the company to resolve the distress situation.

EQUITY RESTRUCTURING
Equity restructuring involves reorganization of equity capital. Under the provisions of the Code, the equity
restructuring can be brought out by various ways, which is generally part of the greater corporate restructuring
process, operational or financial or both. The same includes the following:
• Alteration of share capital
• Reduction of share capital
• Buy-back of shares

Alteration of share capital Legal Provisions: Reduction of share capital Legal Provisions:
• Section 61 to 64 read with Section 13 and 14 • Section 66 of the Companies Act, 2013
of the Companies Act, 2013
• Rule 2 to 6 of the National Company Law
• Companies (Share Capital and Debentures) Tribunal (Procedure for Reduction of Share
Rules, 2014. Capital of Company) Rules, 2016
• National Company Law Tribunal Rules, 2016 • SEBI (LODR) Regulations, 2015.

Buy-Back Legal Provisions:

• Section 68 to 70 of the Companies Act, 2013
• Rule 17 of Companies (Share Capital and
Debentures) Rules, 2014.
• Securities and Exchange Board of India
(Buyback of Securities) Regulations, 2018.

The strategies mentioned above for restructuring can be used jointly or independently depending upon the
operational and financial assessment by the resolution applicant and negotiation with the CoC. The restructuring
strategies of mergers/ amalgamations/ demergers, etc. are mostly used for the purposes of corporate restructuring
and have rarely been employed as a tool for debt restructuring. It may also be noted that the schemes of mergers,
amalgamations and demergers may be approved by CoC and thereafter by adjudicating authority (NCLT).
128 Lesson 5 • PP-IL&P

CASE LAW
The acquisition of Bhushan Steel Ltd (BSL) for Rs. 35,200
crore by Bamnipal Steel Ltd (BNL), a subsidiary of Tata ACQUISITION UNDER THE CODE: EXEMPTION
Steel Ltd. in May 2018, has been the first major case of FROM SEBI TAKEOVER CODE
acquisition of a major stressed asset under the insolvency • The provision is envisaged to boost acquisitions
and Bankruptcy Code. BNL completed the acquisition of of such companies.
controlling stake of 72.65 per cent in BSL in accordance
with the approved resolution plan under the Corporate • The acquisition of Bhushan Steel Ltd. by Tata
insolvency resolution Process (CIRP) of the IBC. Tata Steel Steel Ltd., acquisition of Electrosteel Steels
has paid Rs.35,200 crore in cash to acquire Bhushan Steel. Ltd. by Vedanta resources ltd., acquisition of
It would pay another Rs.1,200 crore over next 12 months Monnet Iispat & energy ltd. by JSW Steel ltd.
to operational creditors. under IiBC were exempted from the open offer
requirements.
The promoters of BSL approached the National Company
Law Appellate Tribunal (NCLAT) over issue of ineligibility • The acquirers of distressed companies are not
of Tata Steel to acquire BSL. L&T, an operational creditor under the obligation to make an open offer.
also approached the Hon’ble NCLAT over issue of unfair The relaxation is granted with an intention
distribution of settlement amount for its claim under the to ease the additional burden on the acquirer
provisions of IBC, 2016. from infusing an additional capital pursuant to
acquiring the stake in the company. Moreover,
NCLAT upheld the acquisition of Bhushan Steel, rejecting in majority of the distressed companies under
allegations of its ineligibility by the promoters of the CIRP or where process is over, the dues of even
company. The NCLAT also rejected the claims of L&T, an the secured creditors have not been paid in full
operational creditor of Bhushan Steel Ltd, opposing Tata and as a result the liquidation value in respect
Steel’s resolution plan seeking a higher priority in debt of equity shareholders is Nil.
settlement.
The NCLAT said that Tata Steel UK, a foreign subsidiary of Tata Steel, which was fined by an English Court in February
2018 under UK Act, had a provision of ‘imprisonment for a term not exceeding twelve months, or a fine, or both’.
While, the provision in section 29A(d) of the Code, which deals with eligibility, stipulates “has been convicted for
any offence punishable with imprisonment for two years or more”, cannot be equated with Section 33(1)(a) of
the U.K Act, said NCLAT. Section 29A of the IBC mandates that a person convicted for any offence punishable with
imprisonment for two years or more is ineligible for submitting a resolution plan.
Over the claims of L&T, which had supplied goods and machineries over Rs.900 crore, NCLAT said that Tata Steel’s
resolution plan was fair towards operational creditors of Bhushan Steel which has a total demand of Rs.1,422 crore.
The NCLAT observed that the company has allotted Rs.1,200 crore for them and L&T plea for a higher priority could
not be accepted.
Moreover, it also declined the plea of the promoters family, contending Tata Steel’s Resolution Plan’ was illegal as
it purports to transfer shares’ of the ‘preference shareholders’ of Bhushan Steel without their consent for a fixed
consideration of Rs.100 as against Rs.2,269 crore.

RESOLUTION MEASURES UNDER THE INSOLVENCY AND BANKRUPTCY CODE, 2016

As stated earlier, the Insolvency and Bankruptcy Code, 2016 read with regulation 37 of CIRP Regulations provides
for various measures to resolve the insolvency of the Corporate debtor. These measures are detailed as follows:
• Transfer of all or part of the assets of the corporate debtor to one or more persons:
The resolution applicant may acquire part of the assets and may opt to transfer some assets to one or more
persons in order to fetch a better value towards the resolution of the Corporate debtor. The consideration
towards the said assets is utilized to repay the dues of Corporate debtor to its creditors.
• Sale of all or part of the assets whether subject to any security interest or not:
The resolution applicant, as its resolution strategy, may provide for sale of the assets of the Corporate Debtor
in full or in part whether subject to any security interest or not. For example, if the Corporate Debtor holds
assets which may be subject to the security interest and which may bring benefit to the Corporate Debtor on
Lesson 5 • Resolution Strategies 129

their sale (through sale of all or part of assets), the resolution applicant may provide for sale of such assets
and provide for settlement of debt of the Corporate Debtor or infusion for improvement of operations of the
Corporate Debtor or for activity of any other similar nature through the funds as realized from sale of such
assets.
• Restructuring of the corporate debtor, by way of merger, amalgamation and demerger
As discussed earlier, the Resolution Plan may also provide for merger/amalgamation/demerger or combination
of such arrangements in order to resolve the Corporate Debtor, as best suited to it.
• The substantial acquisition of shares of the corporate debtor, or the merger or consolidation of the
corporate debtor with one or more persons
The resolution applicant may provide for the substantial acquisition of the shares of the Corporate Debtor or
the merger or consolidation with one or more persons as may be beneficial to the Corporate debtor to fetch the
maximized value of its assets and resolve the state of insolvency. The prohibition set out under the proviso to
Regulation 3(2) of the takeover regulations, which restricts an acquirer from acquiring shares or voting rights
in a target company, resulting in aggregate shareholding of the acquirer, along with persons acting in concert,
exceeding the maximum permissible non-public shareholding of 75%, will not be applicable to an acquirer
acquiring shares pursuant to a resolution plan approved under Section 31 of the Code.

The following sub-regulation (2a) was added to regulation 10 of Securities and Exchange Board of India
(Substantial Acquisition of Shares and Takeovers) Regulations, 2011 vide Securities and Exchange Board of
India (Substantial Acquisition of Shares and Takeovers) (Second Amendment) regulations, 2020 on 22nd
June, 2020 which states the following:
“(2a) any acquisition of shares or voting rights or control of the target company by way of preferential issue
in compliance with regulation 164a of the Securities and Exchange Board of India (Issue of Capital and
Disclosure Requirements) Regulations, 2018 shall be exempt from the obligation to make an open offer under
sub-regulation (1) of regulation 3 and regulation 4.”

• Cancellation or delisting of any shares of the corporate debtor, if applicable

Equity restructuring by cancellation or reduction or delisting of shares of the Corporate debtor may be quite
useful in resolution of the Corporate debtor as the same may save the RA from time consuming transfer
procedures and other problems. Moreover, the delisting procedure under the SEBI (Delisting of Equity Shares)
Regulations 2009 will no longer apply to any delisting of equity shares pursuant to a resolution plan approved
under Section 31 of the Code, if the resolution plan satisfies the following conditions:

• the plan sets out a specific delisting procedure; or

• the plan provides an exit option to existing public

shareholders at a price specified in the plan which shall
not be less than the liquidation value determined under
regulation 35 of the Insolvency and Bankruptcy Board of
India (Insolvency Resolution Process for Corporate Persons)
Regulations, 2016, and;

• further, if the promoters are provided with the opportunity

of exiting under the plan at a price, then the delisting should
be at a price not less than the price at which the promoters
are provided exit.
130 Lesson 5 • PP-IL&P

• Satisfaction or modification of any security interest

The resolution applicant may also satisfy or modify any of the security interest(s) as held by the Financial
Creditor(s) as part of the debt restructuring.
• Curing or waiving of any breach of the terms of any debt due from the corporate debtor:
The Corporate Debtor may suffer from breach(es) of terms of the debt owed by it to the creditors which may
play a vital role in the process of its acquisition by the resolution applicant. Thus, the resolution applicant in
order to acquire the Corporate Debtor free from past breaches, non-compliances which may create problems
in the future, as per its due diligence, may provide for cure of such breach(es) or may provide for waiver of
such breach(es).
• Reduction in the amount payable to the creditors
The resolution applicant as part of the debt restructuring may provide for settlement of the debt of the creditors
at a price lower than their dues/ claims since the payment of the entire dues/claims of the creditors may not
be feasible and viable for the resolution applicant in order to acquire the Corporate Debtor and resolve its
insolvency.
• Extension of a maturity date or a change in interest rate or other terms of a debt due from the corporate
debtor
The debt restructuring, as designed/ formulated by the resolution applicant for the Corporate Debtor (as a
part of the Resolution Plan), may provide for the extension of maturity date or change in the interest rate or
other terms of the debt due from the Corporate Debtor.
• Amendment of the constitutional documents of the corporate debtor
Resolution applicant, as part of the corporate restructuring may require the amendments in terms of the
constitutional documents of the Corporate debtor, Memorandum of Association and Articles of the Association
which inter-alia other things, define the powers and duties of the members and Board of directors of the
Company. The amendments of the constitutional documents of the Corporate debtor can aid the resolution
applicant in process of acquisition of the Corporate debtor and implementation of the Resolution Plan
effectively.
• Issuance of securities of the corporate debtor, for cash, property, securities, or in exchange for claims or
interests, or other appropriate purpose
The Resolution Plan by the resolution applicant may provide for the issuance of the securities including shares
or debentures of the Corporate debtor in lieu of cash, property, securities or in exchange for the claims/ interests
or other appropriate purpose. The resolution applicant may provide for issuance of securities of the Corporate
debtor to itself for the funds it might bring in, for the property it might bring in and may provide for issuance of
the securities to creditors in conversion of their debt/ claims in full or in part as consideration to them or for any
other appropriate purpose as may be beneficial or helpful in resolution of the Corporate debtor.
• Change in portfolio of goods or services produced or rendered by the corporate debtor
For operational/ organizational restructuring, the resolution applicant may provide for change in portfolio of
goods or services produced or rendered by the Corporate debtor which may or may not be part of its current
portfolio.
• Change in technology used by the corporate debtor
The resolution applicant, may provide for the change in technology or process used by the Corporate debtor
for the resolution of insolvency of the Corporate debtor as there may be case that the Corporate Debtor may be
suffering from obsolete technologies or process.
• Obtaining necessary approvals from the Central and State Governments and other authorities
The resolution applicant, if required, would provide for obtaining the necessary approvals (on basis of current
processes/ goods/ services of the Corporate debtor or on the basis of the future operational processes/goods/
services of the Corporate debtor as required under the resolution Plan) from the Central and State Government
and other authorities.
 Lesson 5 • Resolution Strategies 131

ACQUISITION OF CORPORATE DEBTOR UNDER LIQUIDATION THROUGH SALE OF ASSETS AS A

GOING CONCERN

REGULATION 32A OF IBBI (LIQUIDATION PROCESS) REGULATIONS, 2016

Regulation 32A states as follows:
1. Where the committee of creditors has recommended sale under
clause (e) or (f) of regulation 32 or where the liquidator is of the Chapter VI (comprising regulations
opinion that sale under clause (e) or (f) of regulation 32 shall 32 to 40) of the IBBI (Liquidation
maximise the value of the corporate debtor, he shall endeavour Process) Regulations, 2016 makes
to first sell under the said clauses. the following provisions for the
realization of assets. The IBBI had
2. For the purpose of sale under sub-regulation (1), the group of inserted Regulation 32A in the IBBI
assets and liabilities of the corporate debtor, as identified by the (Liquidation Process) Regulations,
committee of creditors under sub-regulation (2) of regulation 2016 to provide for methods for sale of
39C of the Insolvency and Bankruptcy Board of India (Insolvency assets as a going concern as a resolution
Resolution Process for Corporate Persons) Regulations, 2016 measure for the CD.
shall be sold as a going concern.
3. Where the committee of creditors has not identified the assets and liabilities under sub-regulation (2) of
Regulation 39C of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate
Persons) Regulations, 2016, the liquidator shall identify and group the assets and liabilities to be sold as a
going concern, in consultation with the consultation committee.
4. If the liquidator is unable to sell the corporate debtor or its business under clause (e) or (f) of regulation
32 within ninety days from the liquidation commencement date, he shall proceed to sell the assets of the
corporate debtor under clauses (a) to (d) of regulation 32.
Regulation 32 of liquidation regulations provides as below: The liquidator may sell:

a) an asset on a standalone basis;

b) the assets in a slump sale;

c) a set of assets collectively;

d) the assets in parcels;

e) the corporate debtor as a going concern; or

f) the business(s) of the corporate debtor as a

going concern

Provided that where an asset is subject to security interest, it shall not be sold under any of the clauses (a) to
(f) unless the security interest therein has been relinquished to the liquidation estate.
132 Lesson 5 • PP-IL&P

CASE LAWS

Case 1
In the matter of Y. Shivram Prasad & Ors. v. S. Dhanapal & Ors, the NCLAT passed the impugned order of liquidation
as Committee of Creditors did not find any resolution plan viable and feasible. The promoters submitted that they
should have been given an opportunity to settle the dues. While rejecting the said submission, the NCLAT clarified
that settlement can be made only at three stages, i.e., before admission, before constitution of CoC and in terms
of section 12A of the Code and such stages were over in this instant matter. It, however, observed that during the
liquidation process, it is necessary to take steps for revival and continuance of the Corporate debtor by protecting it
from its management and from a death by liquidation.
Wherein this appellate tribunal having noticed the decision of the Hon’ble Supreme Court in “Swiss Ribbon Pvt.
Ltd. & Anr. v. Union of India & Ors. (Supra) and “Meghal Homes Pvt. Ltd.” observed and referring to the matter of
“Swiss Ribbon Pvt. Ltd. & Anr. v. Union of India & Ors. (Supra) where Hon’ble Supreme Court observed that “What is
interesting to note is that the Preamble does not, in any manner, refer to liquidation, which is only availed of as a last
resort if there is either no resolution plan or the resolution plans submitted are not up to the mark. Even in liquidation,
the liquidator can sell the business of the corporate debtor as a going concern” and NCLAT in its matter further held
that “in view of the provision of Section 230 and the decision of the Hon’ble Supreme Court in ‘Meghal Homes Pvt. ltd.’
and ‘Swiss Ribbons Pvt. Ltd.’, we direct the ‘liquidator’ to proceed in accordance with law. He will verify claims of all
the creditors; take into custody and control of all the assets, property, effects and actionable claims of the ‘corporate
debtor’, carry on the business of the ‘corporate debtor’ for its beneficial liquidation, etc. as prescribed under Section 35
of the Code. If the members or the ‘Corporate debtor’ or the ‘creditors’ or a class of creditors like ‘Financial Creditor’
or ‘Operational Creditor’ approach the company through the liquidator for compromise or arrangement by making
proposal of payment to all the creditor(s), the liquidator on behalf of the company will move an application under
Section 230 of the Companies Act, 2013 before the adjudicating authority i.e. National Company Law Tribunal, Chennai
Bench, in terms of the observations as made in above. On failure, as observed above, steps should be taken for outright
sale of the ‘Corporate debtor’ so as to enable the employees to continue”.
Case 2
In the matter of Edelweiss Asset Reconstruction Company Ltd. v. Bharati Defence and Infrastructure Ltd., the Resolution
Professional (RP) filed an application seeking approval of the resolution plan submitted by an resolution applicant,
who is a Financial Creditor with 82.7% voting share in the CoC. The plan provided that the resolution applicant will
sell the Corporate debtor in two years. NCLT, Mumbai Bench noted that the plan does not give due consideration
to the interest of all stakeholders, seeks several exemptions, and contains a lot of uncertainties and speculations. It
provides for generation of income from ongoing operations and no upfront money is brought in by the resolution
applicant. The NCLT Bench also noted that the resolution applicant has proposed to hold majority equity in the
Corporate debtor, run its operations, enhance its value and over a period endeavour to find a suitable investor/buyer
for the same.

Relying on the judgment in the matter of Binani Industries Limited, the NCLT Bench observed: “…..resolution
plan is for insolvency resolution of the Corporate Debtor as a going concern and not for the addition of value and
intended to sale the corporate debtor”. It observed that resolution applicant is essentially extending the CIRP
period to find an investor, which is not the intention of the legislature. It further observed: “if the ultimate object
in the resolution plan is to sell the company, then it can be achieved by sale as a going concern during the liquidation
process”. Accordingly, it rejected the resolution plan and ordered for liquidation.