Managing the Committee of Creditors under the Insolvency and Bankruptcy
Code (IBC), 2016

 

Brief Introduction about the code:

IBC came into existence by the
government notification on 28 May 2016. The Act consolidates and amends the
existing laws relating to liquidation and insolvency of corporates, partnership
and individuals in a time bound manner. In the interest of the stakeholders and
the creditors, IBC aims to ensure smoother settlement of insolvency cases.
Before this code, there was no single law to deal with insolvency and
bankruptcy in India. Few acts and legislations which were used to deals with
liquidation and insolvency cases of corporate, firm and individual that existed
before IBC Code are Sick Industrial
Companies (Special Provisions) Act- SICA, 1985, The Securitization and Reconstruction of Financial Assets and
Enforcement of Security interest (SARFAESI) Act, 2002, Recovery of debt due to Banks and Financial Institution Act, 1993, The Companies Act, 2013.

Other enactments for partnership
and individual insolvencies, such as, individual cases were dealt under the
Presidency Towns Insolvency Act and Provisional Insolvency Act. Liquidation of
companies were handled by the High Courts. The code consolidates all these
insolvency and liquidation proceedings for individual, corporate and firm and
provides a single platform for the resolution.

The IBC Ecosystem:

Adjudicating Authority

A body that would have exclusive jurisdiction to
deal with insolvency-related matter and can entertain or dispose any
insolvency application, approve or reject resolution plans and can decide in
respect of claims or other matters

Insolvency and Bankruptcy Board of India

A body that would consists of members including
representative from MCA, MoF, and RBI and would regulate the appointment of
insolvency professionals, information utilities and promote transparency and
governance in the administrating of the code.

Information Utilities

Professional bodies registered with the board
that would collect, maintain and provide information relating to the
indebtedness of the companies.

Insolvency professional agency

A Body that would admit insolvency professionals
as members and develop a code of conduct and promote transparency and best
practices and governance

CoC

Consists of financial creditors who will appoint
and supervise and approve  the action
of resolution professionals

 

The code mandates all classes of
creditors (financial, operational, regulatory authority) to initiate a
resolution process in case of a default by filing an application with NCLT. The
code provides for immediate suspension of the Board of Directors and promoters
power and requires the insolvency professional to take control of the corporate
debtor. The primary reason behind dissolving the Board of Directors and
promoters and handing over the management to the RP is to prevent the
mismanagement of the corporate debtor that could  eventually be detrimental to the interest of
its creditors and stakeholders during the Corporate Insolvency Resolution
Process (CIRP). The RP is expected to take steps to protect and preserve the
stake of the corporate debtor and manage its operations on a going concern
basis.

 The code provides 180 days for the resolution
process with 90 days extension to inculcate a balanced approach between
rehabilitation and recovery of the health of the corporate debtor and provides
for mandatory liquidation in case resolution plan is not approved by the
authority.

When the CIRP process begins,
NCLT makes a public announcement and appoints an Interim Resolution Professional
(IRP). The IRP constitutes a committee of creditors (CoC) after determination
of the financial position and collation of all the claims received against the
corporate debtor. The CoC comprises of all the financial creditors of the
corporate debtor. The voting share of the CoC is determined on the basis of financial
debt owed by the Corporate Debtor. The IRP holds meetings for the CoC to discuss
the current situation, give a business update  and vote upon
various agendas relating to the business of the company and insolvency process.
The CoC may, in the first meeting either resolve to appoint the IRP as a
Resolution Professional (RP) or to replace the IRP by another RP.

Managing the Committee of Creditors:

A meeting of the CoC is organized
by the RP on an on-going basis throughout the CIRP process. The purpose of the
meeting is to update the members of the CoC on the status of the insolvency
process and operations, while discussing the key issues, challenges faced and to
take votes upon the necessary items as required by the code. To organize and
manage a CoC is a 3 steps process that covers steps to be takenby the RP
Pre-CoC, during the CoC and Post CoC.

Managing Pre-CoC: To call upon a meeting of the CoC, the RP needs
to send a seven days’ notice in writing to every participant. Along with the
notice, the RP also needs to send an agenda note that contains the key items
that need to be discussed in the meeting and voted upon by the CoC. Under
Section 28 of the code, there are certain actions that need CoCs approval
before the RP can take any action. Notice also mentions the date, time and
venue of the meeting.

The RP is expected to apprise the
CoC on the update that may have occurred between 2 CoCs. Status update includes
key communications & meetings with various authorities, business update of
the corporate debtor and other updates as decided by the RP.

As per the code, in case all the
members of the committee are not present, then voting is to be done in an
electronic manner. Arrangements for e-voting are also required in such cases.
The RP needs to provide a secure voting platform to the voters.

Other details like video recording
(as mandated by the code), ID proofs, attendance sheets, roll call sheets are
also taken care of at this stage for the smooth conduct of the meeting.

Managing the CoC meeting: Before the CoC meeting begins, the RP also
ensures that an attendance sheet is signed by the attendees, so as to keep a
record of the creditors attending the meeting. Thereafter, the RP begins the
meeting by taking a roll call and apprising the members by running through the
presentation on status of the Company and discuss the agenda items that require
CoC’s approval

Managing post-CoC: In case the voting is to be held by electronic
means, the minutes of the meeting are to be sent to the members of the CoC
within 48 hours of the meeting. The minutes should specifically disclose the
particulars of the participants who attended the meeting in person/video
conferencing/other audio visual means.

The e-voting needs to be
concluded within 24 hours of sending the minutes to the CoC. Results of the
voting are to be circulated within 24 hours of the closing of the voting. The
RP is expected to proceed as per the results of the voting in conducting the
resolution process of the corporate debtor.