What it means
When a company cannot pay its debts, the law in some countries sets up a formal process to rescue it or sell it, rather than simply shutting it down. In India's insolvency framework this is called the corporate insolvency resolution process, and a professional appointed to run it invites bids from outsiders.
The invitation document is the Request for Resolution Plans. The RFRP tells bidders what they need to know.
It describes the company, the process, the timeline and the eligibility criteria that bidders must meet, and it explains how plans will be evaluated. Anyone interested has to read it carefully, because a plan that ignores the rules can be rejected.
A resolution plan is a proposal for dealing with the company's debts. It might involve paying creditors in cash, restructuring the business, bringing in new investment or selling assets.
The plan is put to the committee of creditors, the group of lenders with voting rights, who decide whether to approve it. For creditors, the RFRP matters because it shapes the quality of the offers they receive.
A clear document with a transparent scoring method attracts serious bidders and makes the comparison of offers fair. A vague document can lead to weak bids, disputes and delays, which usually erode the value of the business.
Finance professionals meet the RFRP from several angles. Lenders use it to decide how to recover money, bidders use it to price their offers, and advisers use it to prepare submissions.
The approach and details vary by country, so this entry describes the general idea. The letters can mean something else in other settings, so check the context.
In an insolvency and lending article, Request for Resolution Plans is the likely meaning.
In practice
Real-world examples.
Example
A resolution professional appointed to a failing steel manufacturer publishes a Request for Resolution Plans. It lists the eligibility rules, the deadline for submissions and the criteria the creditors will use to compare bids.
Example
An investment fund reads the RFRP for a distressed hotel chain and notices that bidders must show proof of funds. It decides to team up with a strategic partner to meet the requirement before submitting a plan. The fund's lawyers then check that the joint bid satisfies every eligibility condition.
Example
A bank that is a lead creditor reviews an RFRP draft and asks for a clear scoring method that gives weight to upfront cash. It argues that a vague method would make the bids hard to compare and could invite disputes later. The resolution professional agrees to add a clearer weighting table.
Formula
Calculation
Recovery rate = Amount offered to creditors / Total admitted claims x 100%
Suppose a company has admitted creditor claims of $200,000,000. Bidder A offers $60,000,000 in cash and Bidder B offers $80,000,000, but only $50,000,000 of it is paid up front with the rest spread over later years.
Recovery rate for Bidder A: $60,000,000 / $200,000,000 x 100% = 30%
Recovery rate for Bidder B: $80,000,000 / $200,000,000 x 100% = 40%
On face value Bidder B offers more, but the creditors will also weigh the timing and certainty of payment, which is why the RFRP sets out how plans are scored.Case study
Seen in the real world.
Eastfield Textiles is a fictional manufacturer used in an illustrative scenario. It owes lenders $200,000,000 and enters a formal insolvency process after missing several payments.
The resolution professional issues a Request for Resolution Plans, receives four plans, and puts them to the committee of creditors. One plan offers $60,000,000 in cash, another offers $80,000,000 with part deferred, and two offer smaller amounts but promise to keep the factory running. The creditors score each plan on the amount, the timing and the credibility of the funding.
The committee approves the second plan after the bidder improves its upfront payment to $65,000,000. The case shows how the RFRP framework lets creditors compare very different offers on a consistent basis, and how bidders can improve their position during negotiations. It also shows that the highest headline number does not always win, because certainty and timing carry weight.
Watch out
Common mistakes.
- Treating the RFRP as a formality. Bidders who overlook its eligibility rules or scoring method can have their plans rejected.
- Choosing a plan only on the headline amount. Timing, certainty of payment and the future of the business all matter.
- Assuming the same process applies in every country. The details of insolvency law differ widely.
Questions
People also ask.
Who issues the RFRP?
The professional running the insolvency process normally issues it, usually with the approval of the creditors. Draft versions are often shared with creditors before the final document is published.
What is a resolution plan?
It is a proposal for how the company's debts will be dealt with and how the business will continue or be sold.
Who decides which plan wins?
The committee of creditors votes, and the plan then goes to the relevant authority for approval.
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