INDIA Law and Practice Contributed by: Shardul Shroff, Misha, Kritika Poddar and Aishwarya Satija, Shardul Amarchand Mangaldas & Co
recovery rather than informal out-of-court workout strategies. 3.2 Legal Status The legal status of an out-of-court restructuring is akin to any other intercreditor agreement or contract, governed by the contract law. If the debtor fails to meet its obligation under the agreement, the creditor may enforce provisions within the contract or initiate a CIRP provided the prerequisite conditions are met. 4. Statutory Restructuring, Rehabilitation and Reorganisation Proceedings 4.1 Opening of Statutory Restructuring, Rehabilitation and Reorganisation See 1.2 Types of Insolvency . 4.2 Statutory Restructuring, Rehabilitation and Reorganisation Procedure See 1.2 Types of Insolvency , 2.2 Priority Claims in Restructuring and Insolvency Proceedings and 2.3 Secured Creditors . A resolution plan approved for the CD can propose various measures including: • cancellation or delisting of any shares of the CD; • satisfaction or modification of any security interest; • termination of contracts in accordance with their terms; and • releasing guarantors from their liability. A resolution plan approved for the CD must conform to the mandatory requirements prescribed under the Code and related regulations (the “Mandatory Requirements”). These are as follows: • payment of insolvency resolution costs in priority to all other debts of the CD; • payment of debts to OCs and dissenting FCs to the extent of the liquidation value of their claims; • provision for the management of affairs of the CD after the approval of the resolution plan; • provision for implementation and supervision of the resolution plan;
• does not contravene any provisions of the law for the time being in force; and • conforms to other requirements as specified by the IBBI. Subject to these Mandatory Requirements, a resolu - tion plan may be crammed down on the dissenting secured creditors, shareholders and other stakehold - ers. An approved resolution does not ipso facto release non-debtor parties (such as guarantors) from their lia - bilities but may contain provisions allowing the same. In practice, however, creditors do not usually agree to such release as the non-debtor party’s liability is inde - pendent from the CD’s. Similarly, group companies are not released from the debt obligations as these remain distinct from those of the CD. Managing direc - tors of the CD continue to be liable for the offences committed by the CD. A scheme of arrangement under CA 2013 between a company and its creditors or class of creditors may provide for restructuring of the company’s debts, whereby securities available to the creditors are struc - tured so that a non-debtor is released of the liability given as security for and on behalf of the company. Determination of Value of Claims Against the Debtor The IRP invites all categories of creditors to submit their proof of claims during a CIRP including creditors with contingent claims. The IRP may also call for such evidence as may be deemed necessary by them for substantiating all or part of the claim. When the amount of the claim is not precise due to any contingency or other reason, the IRP or RP can make the best estimate of the claim based on the information available and further make appropri - ate revisions whenever warranted. However, the RP cannot adjudicate on the claim. Once the claims are admitted by the IRP, the resolution plan provides for the treatment of such claims. However, the jurisprudence around the treatment of contingent claims is not yet settled and a resolution
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