Introduction of Committee of Creditor [ Section 21 ] - Insolvency Resolution And Liquidation For Corporate Persons - IBC

Introduction of Committee of Creditor The Committee of Creditor (CoC) is the most important business decision making body in every corporate insolvency resolution process (CIRP). It exercises its commercial wisdom and plays a fundamental role in the turnaround and restructuring of the corporate debtor (CD) within the timelines set down by the IBC. Most importantly, the Committee of Creditor (CoC) is vested with the responsibility to assess the viability of the CD and determine the manner in which its distress is to be resolved. The Committee of Creditor (CoC) is uniquely positioned to support and facilitate the discharge of duties by the RP. Members of the Committee of Creditor (CoC) support and help the RP in maximizing the value of the assets of the corporate debtor (CD) by discharging their own duties with alacrity. As provided in section 21(1) of the IBC, the IRP shall, after collating claims received against the corporate debtor (CD) and determining its financial position, constitute a Committee of Creditor (CoC). Once the Committee of Creditor (CoC) is constituted, it may, in its first meeting, either resolve to let the IRP continue as the RP or appoint another IP as the RP. The role and functions of the RP are also elaborated in the IBC and corporate insolvency resolution process (CIRP). Regulations. Section 23(2) of the IBC states that the RP shall exercise powers and perform duties vested in or conferred on the IRP under the IBC. The RP is also tasked with additional functions under the IBC and corporate insolvency resolution process (CIRP). Regulations. One of the most important tasks of the RP is to oversee the process of receipt, approval, and submission of the resolution plan for the corporate debtor (CD). However, the ultimate authority to approve or reject the resolution plan is the Committee of Creditor (CoC). Hence, the RP primarily discharges administrative functions and works in accordance with the provisions of the IBC and the applicable regulations made by the IBBI, for the overall benefit of every stakeholder, including the Committee of Creditor (CoC). In Municipal Corporation of Greater Mumbai (MCGM) Vs. Abhilash Lal and Others - SC, Dated 15.11.2019 The Supreme Court observed that: On admission of an insolvency application filed by a financial creditor/operational creditor, a moratorium is declared on the continuation and initiation of all legal proceedings against the debtor. The NCLT appoints an IRP. The moratorium operates till the completion of the insolvency resolution process, which, by law, should be completed within a mandated time frame. During the moratorium period, the debtor cannot transfer, encumber, or sell any asset. On appointment of an IRP, the board of directors is suspended and management vests with the IRP. These professionals (IRPs) have to conduct the insolvency resolution process, take over the assets and management of the company, assist creditors in collecting information, and manage the insolvency resolution process. The term of the IRP continues until an RP is appointed under section 22 . The IRP has to first determine the debtor s financial position by collecting information on assets, finances, and operations. Information may include data relating to operations, payments, assets, and liabilities. The IRP also has to receive and collate claims submitted by creditors. The IRP selected by the NCLT has to constitute a Committee of Creditor (CoC) comprising all the financial creditors of the corporate debtor. This provision is aimed at creditors adopting a collective approach toward insolvency resolution instead of proceeding individually. Key decisions of the process and the resolution plan are approved by the Committee of Creditor (CoC) if it is satisfied that the provisions of the most acceptable plan would ensure that their dues are cleared. The IBC is principally aimed at aiding a corporate debtor (CD) in the resolution of its insolvency condition without approaching liquidation. The key to this process is the finalization of an insolvency resolution plan. A suitably structured plan would provide for the repayment of the debtor s outstanding liabilities after evaluating its financial worth, while ensuring its survival as a going concern. The resolution plan must necessarily provide for the repayment of the debt of operational creditors in a manner such that it shall not be less than the amounts that would be due should the debtor be liquidated per section 30(2) of the IBC. In addition, the plan should identify the manner of repaying insolvency resolution costs, as well as implementing and supervising the strategy, and should be in compliance with the law. If the terms (including the terms of repayment) under the resolution plan are approved by the Committee of Creditor (CoC), it has to be further approved by the NCLT, which is the Adjudicating Authority.