A steel maker is in insolvency. Liquidation would fetch Rs 400 crore; a bidder offers Rs 650 crore. Work the distribution across financial creditors, operational creditors and shareholders, and say why lenders vote for the bid.

Financial creditors receive about Rs 620 crore, 41.3% of their claims, operational creditors Rs 10 crore, 5%, and shareholders nothing. Process costs of Rs 20 crore come off the top. In liquidation the lenders would get Rs 380 crore, 25.3%, and suppliers nothing, so every class does at least as well under the plan. Lenders vote yes because 41% now beats 25% after years of a scrap sale.

When a household cannot pay everyone, the law does not let the loudest creditor grab the furniture; it sets an order. The same for a company. The costs of running the process are paid first, because nobody would run it otherwise; secured lenders next, because they lent against the plant; then unsecured and operational claims; and shareholders last, because they owned the upside and so own the loss. A resolution plan can vary the amounts but must respect the floor: each class must receive at least what liquidation would give it. The exact ordering and the floors are set by the insolvency code and its regulations and have changed over the years, so state the framework and check the current text.

Top down. Rs 650 crore less Rs 20 crore of process costs leaves Rs 630 crore; Rs 10 crore to operational creditors leaves Rs 620 crore for financial creditors, 41.3% of Rs 1,500 crore. Operational creditors get 5% of their Rs 200 crore, which is above their liquidation entitlement of nothing, because the plant is worth less than the secured debt that ranks ahead of them. Shareholders get zero: their company owed Rs 1,720 crore and is worth Rs 650 crore, a gap of Rs 1,070 crore that lenders absorb almost entirely.

Because the alternative is not Rs 1,500 crore; it is Rs 380 crore. A creditor votes by comparing the plan with liquidation, and Rs 620 crore within months beats Rs 380 crore after a scrap auction that may take two years while the plant rusts and the land title is contested. Two more reasons: time value, since a rupee received now is worth more than one in three years; and certainty, since liquidation values are estimates and usually fall once a sale actually begins. Lenders also compare with the bidder's price: 7.2x EBITDA is low for a steel plant, and if a second bidder appears the committee can push for more.

Two things to add before the interviewer does. The vote needs a supermajority of financial creditors by value, so a large dissenting bank matters; the threshold has been amended before, so confirm it. And the bidder's view: it pays Rs 650 crore for Rs 90 crore of EBITDA with the old debt gone, so its own return depends on whether the plant can run at that EBITDA once ore suppliers, who just took a 95% haircut, agree to deliver again. That is the special situations investor's real diligence question.