After the collapse of the subsisting laws for liquidation and insolvency, the Indian economy witnessed a drastic reform after the Insolvency & Bankruptcy Code, 2016 (referred as IBC Code) was brought into force.
The main objective of IBC is the time-bound resolution, maximization of value of assets, the revival of a company which is under financial distress. However, majorly the IBC’s goal is to provide relief to the creditors of the company or the stakeholders. That is the reason that the creditors are given prominence in the Corporate Insolvency Resolution Process [CIRP] and further it is as per the directions of the creditors, who are a part of the Committee of Creditors [COC], that the resolution of the company is done.
WHAT IS COMMITTEE OF CREDITORS (CoC) ?
The COC is the supreme decision-making body in the corporate insolvency resolution process (CIRP) under IBC Code. When a corporate debtor/company is sent into CIRP by the Hon’ble National Company Law Tribunal [NCLT], an Interim Resolution Professional [IRP]. It is the responsibility of such IRP to call for claim from all the creditors within 14 days of public announcement. After verification of such claims, the CoC is constituted by such IRP which includes the following:
- Committee of Creditors (CoC) shall comprise only Financial creditors whose claims have been received and verified by the IRP.
- Under certain circumstances, it may include Operational creditors as well.
The voting right of every member of CoC as per the claim amount in the whole CoC.
WHO CAN BE A PART OF COMMITTEE OF CREDITORS (CoC?
It is pertinent to mention herein that the COC constitutes of only the financial creditors of the company [Financial creditor as defined u/s 5(7) of the Code) who have financial debt as defined u/s 5(8) of the Code with time value of money e.g., homebuyers and banks], whereas for the operational creditors who has debts related to supply of goods and services including employees or Govt Dues e.g., employees, service providers, etc.] in case there are no financial creditors in the company only then they become a part.
WHAT DECISIONS ARE TAKEN BY COMMITTEE OF CREDITORS (CoC) ?
All the important decisions reading the future of the corporate debtor/company are taken by the members of the committee of creditors through voting. The Committee of Creditors are empowered to exercise their commercial wisdom whilst taking any decision for the corporate debtor/company. This is so because it is construed that the committee of creditors having the highest stake in the company have better knowledge and can better adjudge the grim situation of the company under distress.
In totality, the committee of creditors decided the fate of the company and takes all the decisions which are necessary for the same. The regular functioning of the corporate debtor/company is also overseen by the COC through the meetings that are convened.
HOW DECISIONS ARE TAKEN BY THE COMMITTEE OF CREDITORS (CoC) ?
Once the claims are evaluated and the list of the committee of creditors is formed, the representatives to represent each class category of the financial creditors are appointed. That is to say that the Authorized Representative are appointed separately for Homebuyers, Banks and other Financial Institutions, who then represent the said class before the IRP. The Authorized Representative in other words is the mediocre who fills the communication gap between the committee of creditors and the IRP. Every grievance of the members of COC is taken by the authorized representative to the IRP, who then resolves the same.
An e-voting platform is then made by the IRP for conducting the voting. For every decision to be taken in the interest of the resolution/revival of the company, the IRP puts the decision to be taken along with the options against the same on the e-voting platform. Every member of the committee of creditors then has to vote through the ID’s provided to them. The option that receives the majority i.e., at-least 51%, of the voting, is then selected.
ROLE OF THE ADJUDICATING AUTHORITY?
Once the decisions are finalized through the majority voting on e-portal, the reporting of the same has to be done before the Hon’ble NCLT. It is the duty of the IRP to keep reporting every update to the Adjudicating Authority. Apart from reporting in the event the COC feels that there is a foul play, they always have the option to approach the Adjudicating Authority for the adjudication of the same. Even for the change of the IRP the COC has to file an application before the Adjudicating Authority only.
Although it is the COC who looks after the well-being and the major decisions of the company, but the ultimate authorization stamp is always required from the Adjudicating Authority. Once a resolution plan of the company is finalized by the COC through majority voting, the same has to be finalized by the Adjudicating Authority under Section 31 of IBC, only after which it will come into force and shall be binding on all the creditors/stakeholders.
The Creditors of the company/stakeholders have been vested with great powers and responsibilities under IBC, which further leads to the resolution/revival of a company under distress. The Committee of Creditors (CoC) are further entrusted with the commercial wisdom, which empowers them to take the most crucial decisions regarding the fate of the company. By handing in such powers to the creditors of the company, the impact if creditor-in-control model management promises the likelihood of a stronger bankruptcy regime.
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