The NCLT scheme under Sections 230 to 232 and the IBC resolution plan under Section 31 are two distinct restructuring routes. The choice between them depends on the company's solvency, the creditors' composition, and the desired timeline.
The Approval Thresholds
A scheme under Section 230 requires the approval of a majority of persons representing three-fourths in value of the creditors or members present and voting. The IBC resolution plan requires the approval of sixty-six per cent of the committee of creditors. The scheme threshold is higher, but the scheme route allows the company to bind the dissenting creditors within a class, while the IBC route requires the approval of the committee of creditors.
The Timeline
The NCLT scheme process typically takes nine to twelve months, while the IBC CIRP is subject to a 330-day timeline. The IBC timeline is stricter, and the failure to complete the CIRP within the timeline leads to liquidation.
The Moratorium
The IBC imposes a moratorium under Section 14, which protects the company from the enforcement of debts, the institution of suits, and the transfer of assets. The scheme route does not have a statutory moratorium, although the NCLT can grant interim protection. The moratorium is a significant advantage of the IBC route for a company that is facing creditor pressure.
The Strategic Choice
The IBC route is preferred where the company is insolvent, the creditors are diverse, and the company needs the protection of the moratorium. The scheme route is preferred where the company is solvent, the restructuring is consensual, and the company wants to avoid the stigma of the IBC.
Call to Action
Anuj Desai & Associates advises companies and creditors on the choice between the NCLT scheme and the IBC resolution plan—from the approval thresholds and the timeline to the moratorium and the strategic considerations. If you are planning a restructuring, we can help you evaluate the routes.
📧 office@anujdesaiassociates.com
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🌐 https://anujdesaiassociates.com
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