NCLAT Proposes Calibrated Waterfall Mechanism for Operational Creditors

The NCLAT has proposed a calibrated waterfall mechanism instead of a Straight waterfall mechanism under Section 53 of the Insolvency and Bankruptcy Code (IBC) to benefit Operational Creditors, who often receive no payment due to the liquidation value being nil.

The bench suggested allocating a portion of the Resolution Plan corpus to Operational Creditors, based on a predetermined percentage of Financial Creditors’ payments. 

This proposal aims to provide minimal relief to smaller Operational Creditors.

The NCLAT urges the IBBI to explore potential amendments to the Regulations and Code to implement this approach.