What it means
For non-finance managers, understanding a resolution plan is vital because it moves business thinking away from permanent success towards prepared resilience. While most planning focuses on growth, a resolution plan looks at the exact opposite, detailing what happens if the business model breaks down completely.
Regulators frequently require large institutions to submit these plans to protect the wider economy from sudden collapses. However, the underlying logic applies to businesses of all sizes.
It forces leadership teams to map out critical operations, key supplier contracts, vital staff functions, and assets that could be sold off quickly. In practice, creating this document involves identifying your most critical dependencies.
If your primary revenue stream vanished tomorrow, which costs could you cut immediately, and which obligations would legally bind you? By answering these questions in advance, managers prevent panic decisions during a crisis.
Ultimately, having this strategy preserves value. Instead of a messy liquidation where creditors take everything and employees lose jobs instantly, a structured resolution allows for an orderly sale of assets or a managed wind-down, maximising the recovery value for owners and stakeholders.
A resolution plan is like the emergency exit map and oxygen mask instructions on an aeroplane. You hope you never need to use them, but knowing the procedure prevents panic when things go wrong.
In practice
Real-world examples
Example 1
TechStart, a software firm, drafts a resolution plan detailing how to migrate client data to secure servers and return unused prepaid subscriptions safely if funding dries up within six months. The plan names who contacts customers, who holds the server credentials and who signs off refunds. This protects client relationships even if the company has to close.
Example 2
GreenLeaf Catering creates a resolution plan specifying how to fulfil existing wedding bookings using contracted partners while liquidating kitchen equipment to clear bank debts in an orderly way. Each booking is ranked by deposit size so the largest customer commitments are honoured first. The plan also lists which equipment is leased and cannot be sold.
Example 3
BuildRight, a mid-sized contractor, outlines in its resolution plan how to safely hand over active construction sites to alternative builders to protect client investments if insolvency occurs. Site safety, subcontractor payments and warranty obligations are all documented per project. Having this in writing shortens the handover from weeks to days.
Think of it
A resolution plan is like the emergency exit map and oxygen mask instructions on an aeroplane. You hope you never need to use them, but knowing the procedure prevents panic when things go wrong.
Formula
Calculation
Net Recovery Value = Total Liquidated Assets - (Liquidation Costs + Priority Creditor Claims)
Example: A failing shop has assets valued at $100,000, administrative fees of $10,000 and unpaid staff wages of $20,000. The net recovery value is $100,000 - ($10,000 + $20,000) = $70,000, which is then available for other creditors and, last of all, the owners.
The value of planning shows up when you compare an orderly sale with a rushed one. If a rushed sale fetches only 60% of asset value, the proceeds are $100,000 x 0.60 = $60,000, and the net recovery becomes $60,000 - $30,000 = $30,000. The orderly route therefore preserves an extra $70,000 - $30,000 = $40,000.Case study
Seen in the real world
Brighton Cafe Supplies, a fictional mid-sized distributor with 40 staff, faced severe supply chain shocks that threatened its solvency. Because management had previously drafted a resolution plan, they did not panic when cash reserves hit critical lows. The plan had already identified non-essential product lines, dormant software subscriptions, and surplus warehouse space. Within 48 hours of activating the plan, leadership paused unprofitable deliveries, exited the warehouse lease with minimal penalty, and initiated a structured sale of remaining inventory. This proactive approach generated $150,000 from stock sales, which fully covered redundancy payouts and outstanding supplier invoices.
By executing the resolution plan calmly, Brighton Cafe Supplies avoided formal bankruptcy, protected the personal credit ratings of its directors, and preserved the core brand name for a potential future restart under new backing. Afterwards, the directors reviewed what the exercise had taught them. Two supplier contact lists were out of date, and a clause in the warehouse lease nearly delayed the exit by a month. They now review the plan every six months and keep a one-page summary of each major contract alongside it, so that the next test of the plan will run even faster.
Watch out
Common mistakes
- Treating the plan as a static document and never updating contact details or asset values.
- Ignoring the legal and contractual obligations tied to key suppliers and landlords.
- Waiting until the business is already insolvent before beginning to draft the strategy.
Questions
People also ask
Is a resolution plan only for large banks?
No. While regulators mandate them for major financial institutions, any business benefits from having a clear exit or wind-down strategy.
Who is responsible for writing the plan?
It is typically drafted by senior management in collaboration with finance leaders, legal advisors, and operational heads.
How often should this plan be reviewed?
You should review and update the plan at least annually, or whenever the business undergoes a major structural change.