Finding prudence in abstention
Under the code, the insolvency resolution process of a company concludes with the approval of the resolution plan by the National Company Law Tribunal. If the resolution plan is not approved, the corporate debtor will proceed to liquidation and eventually be dissolved. As part of this process, prospective applicants are invited to submit what are called as 'resolution plans' for taking over the company in distress. This is intended to facilitate proposals from persons interested in commercially viable but insolvent businesses to rescue such entities, creating value for all stakeholders in the process.
Such a resolution plan must conform to the criterions in the code and meet such other conditions specified by the Insolvency and Bankruptcy Board of India. Once the resolution plan is approved by a committee of creditors, it is presented to the adjudicating authority for approval.
Similar to the review of an arbitral award by a court under the Arbitration & Conciliation Act, 1996, the code includes a process in which the jurisdiction of the NCLT to review a resolution plan is limited. After approval from the NCLT, the plan is binding on the company and its employees, members, creditors, guarantors and other stakeholders.
As such, the approval of a resolution grants the company a new beginning and resolves, once and for all, the financial position of the company as it stood on the day of the plan's approval, in order to allow it to have a 'clean slate' for the future. The successful resolution applicant then starts running the business of the debtor without pre-insolvency liabilities hanging over its head. The concept of 'clean slate' is not unique to India and is accepted in jurisdictions such as Australia as well.
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