Committee of creditors is formed under regulation 21 of the code, and a major decision-maker in the corporate insolvency resolution process. Let’s find out more in detail.
To make the Corporate Insolvency Resolution Process effective, based on the guidance and suggestions of the members of the committee of creditors, the resolution plan is prepared for the company. As per this code, a company that is registered under the Companies Act 1956, such as Limited liability partnership, Partnership firms, and Individuals or under the Insolvency and Bankruptcy Code, any financial or operational creditor can start the process of corporate insolvency against the corporate debtor. This can be initiated only when the corporate debtor is a defaulter in repayment of debts.
In the process of insolvency, the committee of creditors holds an influential position. This committee of creditors is considered to be a higher level decision-making body in initiating and governing the Corporate Insolvency Resolution Process. According to regulation 21 of the code, a committee of creditors is formulated to fulfill the responsibility of the interim resolution professional so as to call for claims from all the creditors. The maximum time duration should be 14 days from the public announcement and once the claim gets verified, the committee of creditors is formed.
The mandatory condition of the code is to have all financial creditors in the committee of creditors. As per the regulations of the code, it also lists the financial creditors and operational creditors separately. A financial creditor is the one to whom the financial debt and the interest is due, for example Home-buyers, banks, bond holders, guarantee providers, etc. On the other hand, an operational creditor is a person who owns debts related to the goods and services supply, which includes employees, government dues.
Based on the Corporate Insolvency Resolution Process under the code, the committee of creditors have multiple roles and responsibilities to fulfil. Here are some major responsibilities:
The formation of the Committee of Creditors (CoC) holds the position of a higher authority in the Corporate Insolvency Resolution Process (CIRP). All the decisions related to the administration of the corporate debtor are to be taken by the creditors of the Committee of creditors in the meeting, based on the majority vote count of the members.
According to the code, Section 18 and Section 21 directs the Interim Resolution Professional to constitute the Committee of Creditors, once the collation of all the claim proof is done. Whereas, the sub-section (2) of Section 21, clearly indicates that shall encompass ‘all the financial creditors of corporate debtors’.
Being an authoritative entity, a committee of creditors are majorly involved in the decisions and also determine the proceedings, actions and role of the creditors. Here are some of the powers that are given to them as per the regulations of code:
Therefore, all the above mentioned powers are given to the committee of creditors strictly according to the insolvency and bankruptcy code, 2016.
From the above points, the role and relevance of the committee of creditors has been reflected and how they can take up their roles and responsibilities in the right direction towards fulfilling the process of corporate insolvency resolution. Though the conditions and demands vary depending on the case they are dealing with, the core areas to remain active as a committee member remains the same.
