Post-Resolution Challenges: Monitoring Implementation of an Approved Resolution Plan under the IBC
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While approval of a resolution plan signals the formal conclusion of the insolvency process, it does not signify the end of the broader insolvency proceedings. The most significant challenges often emerge in the post-approval phase, focusing on the critical tasks of implementation, vigilant monitoring, regulatory compliance, and ultimately, ensuring the sustainable revival of the corporate debtor. Successful execution is important, as delays or failures in adhering to the approved plan can trigger severe consequences, including renewed litigation, the potential of original claims by creditors, or even the unfortunate default into liquidation.
Understanding Post-Resolution Obligations
The resolution applicant (RA) is statutorily obligated to infuse funds as per the resolution plan’s implementation schedule, undertake operational restructuring to revive the corporate debtor as a going concern, and settle claims of creditors in accordance with the approved plan. The RA must also secure all necessary regular approvals and ensure compliance with statutory requirements, including periodic reporting to the National Company Law Tribunal (NCLT) and updating records with the Registrar of Companies (RoC). Upon approval by the NCLT under section 31 of the IBC, the resolution plan becomes binding on the corporate debtor, its employees, members, creditors, guarantors, and other stakeholders, extinguishing any unapproved claims.
Role of Resolution Professional After Plan Approval
A resolution professional’s (RPs) duties conclude with the submission of the final report to the NCLT, signaling the end of their formal tenure in managing the insolvency process. However, in practice, a complete cessation of involvement at this stage can present significant challenges. Smooth transition often requires a period of transitional support to ensure continuity of operations and comply with the approved resolution plan. This is particularly relevant when a Monitoring Committee has been constituted to oversee the post-approval implementation. The RP must effectively hand over all relevant documentation, operational knowledge, and ongoing responsibilities to the Monitoring Committee, which then assumes the task of implementing the resolution plan’s terms. The key practical challenge lies in the potential lack of clear regulatory guidelines for this transitional phase and ensuring full cooperation between the outcoming RP and the Monitoring Committee to prevent operational disruptions.
Monitoring Committee: Composition and Functions
The Monitoring Committee consists of an RP, representative from the Committee of Creditors (CoC), representatives from the RA, and may include independent advisors to ensure impartial oversight. Their functions include overseeing timelines, ensuring compliance with financial commitments, monitoring regulatory filings, and addressing implementation disputes. This committee is active for 6-24 months, depending on the complexity of the resolution plan and the progress of implementation.
Common Post-Resolution Challenges
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Delay in Fund Infusion: RAs often struggle to arrange capital or debt required under the plan due to a number of factors such as market conditions, litigation risk, or valuation mismatches.
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Regulatory and Statutory Approvals: There are several delays in approvals from Securities Exchange Board of India, Receive Bank of India, etc., can significantly hinder the operational restart or change of ownership of a business, as transactions like mergers or acquisitions cannot be consummated until clearances are obtained or statutory timelines are met.
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Legacy Liabilities and Operational Disruptions: After resolution, there are issues with pending litigations, old vendors, or government authorities. Although old dues are extinguished, practical disputes often continue.
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Non-Cooperation by Ex-Promoters or Key Personnel: This can hinder access to critical records, assets, and business information, disruptive operations and strategic planning. This obstruction often leads to diminished workforce morale and significant challenges in retaining skilled staff.
Implementation Disputes and Litigation
Creditors or stakeholders may challenge certain steps in implementation of an approved resolution plan under the IBC, particularly if the plan is not being executed as agreed. Additionally, delays in implementation are a significant concern, often stemming from ambiguity in plan clauses, judicial proceedings, or procedural disputes, which can erode asset value and lead to lower recoveries for creditors. The absence of a statutory timeline for implementation and the lack of a clear, enforceable role of monitoring committees create legal uncertainty and hinder the timely execution of resolution plans.
Read more : Fourth amendment to IBBI CIRP Regulations, 2016
Judicial View on Monitoring Resolution Plans
The Supreme Court in Ebix Singapore v. Committee of Creditors of Educomp Solutions Limited established that a resolution plan approved by the Committee of Creditors (CoC) becomes legally binding and irrevocable, preventing the successful RA from unilaterally withdrawing or modifying it. This binding nature reinforces accountability, ensuring the integrity and timeliness of the resolution process. Courts will not intervene to allow withdrawal based on commercial disagreements, delays, or post-approval concerns about financial viability. Intervention is permissible only in cases of egregious misconduct, such as intentional falsification or concealment of data, or material non-compliance with statutory provisions. The principle underscores that resolution plans are statutory creations, not mere contracts, and their approval by the CoC marks a finality in the process.
Tools and Mechanisms for Effective Monitoring
There are several effective strategies, such as:
- Detailed implementation timelines
- Periodic status reports to CoC or Monitoring Committee
- Escrow arrangements for fund infusion
- Independent auditors for compliance
- Technology-enabled monitoring systems (dashboards, alerts, Information Utility integration)
Consequences of Non-Implementation of the Plan
If a resolution plan is not implemented, the NCLT may order liquidation under section 33(3) of the IBC, to ensure the orderly winding up of the corporate debtor’s affairs. The NCLT can enforce penalties ranging from Rs.1 lakh to Rs. crore on individuals found to have initiated fraudulent or malicious proceedings, including those involved in misrepresentation during the resolution process. Creditors may pursue damages or initiate fresh insolvency proceedings if the resolution plan’s failure is from misconduct or non-compliance. The non-implementation of a resolution plan severely undermines stakeholder confidence, as it signals a breakdown in the resolution process, erodes trust in the insolvency framework, and discourages future investment, and cooperation among creditors and other parties.
Policy Recommendations Post-Resolution Challenges
To improve the insolvency framework and the approach to such circumstances, it is recommended to:
- Introduce standardised post-resolution monitoring guidelines by IBBI.
- Strengthen monitoring committees with industry experts.
- Set up digital tracking mechanisms integrated with IBBI and Information Utilities.
- Consider performance guarantees for RAs in large cases.
Conclusion
Successful insolvency resolution under the IBC hinges not just on the approval of a resolution plan but also on its effective, timely, and good faith execution. A mere ‘approval’ does not guarantee the revival of the corporate debtor, necessitating the need for a strong monitoring system and robust implementation protocols are essential to ensure the plan’s objectives of value maximization and long-term sustainability are met. Addressing these post-resolution challenges is vital to improving India’s overall insolvency ecosystem and achieving the true objectives of the IBC.
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