Composition of the Committee of creditors [ Section 21 ] - Insolvency Resolution And Liquidation For Corporate Persons - IBC

Composition of the Committee of creditors As per section 21 of the IBC, the Committee of creditors shall comprise all Financial creditors (FC) (both secured and unsecured) of the corporate debtor (CD). However, any Financial creditors (FC) (or a representative of the Financial creditors (FC) ) who is a related party of the corporate debtors and to whom a corporate debtors owes a financial debt does not have any right to participate in, be represented on, or vote in a meeting of the committee of creditors. Where the corporate debtor owes financial debts to two or more financial creditors as part of a consortium or agreement, each financial creditors shall be part of the committee of creditors and their voting share is determined on the basis of the financial debts owed to them. Where there is no financial debt or where all Financial creditors (FC) are related parties of the corporate debtor (CD), the committee of creditors CoC consists of operational creditors only, comprising: the 18 largest operational creditors by value, one representative elected by all workmen and one representative of employees. Regulation 16B provides that where the corporate debtors has only creditors in a class and no other financial creditors eligible to join the committee of creditors, the committee of creditors shall consist of only the authorised creditors. Committee of creditors [ Section 21 ] (1) The interim resolution professional shall after collation of all claims received against the corporate debtor and determination of the financial position of the corporate debtor, constitute a committee of creditors. (2) The committee of creditors shall comprise all financial creditors of the corporate debtor: Provided that a financial creditor or the authorised representative of the financial creditor referred to in section 21(6) or (6A) or section 24(5), if it is a related party of the corporate debtor, shall not have any right of representation, participation or voting in a meeting of the committee of creditors. Provided further that the first proviso shall not apply to a financial creditor, regulated by a financial sector regulator, if it is a related party of the corporate debtor solely on account of conversion or substitution of debt into equity shares or instruments convertible into equity shares or completion of such transactions as may be prescribed, prior to the insolvency commencement date. (3) Subject to sections 21(6) and (6A), where the corporate debtor owes financial debts to two or more financial creditors as part of a consortium or agreement, each such financial creditor shall be part of the committee of creditors and their voting share shall be determined on the basis of the financial debts owed to them. (4) Where any person is a financial creditor as well as an operational creditor,- (a) such person shall be a financial creditor to the extent of the financial debt owed by the corporate debtor, and shall be included in the committee of creditors, with voting share proportionate to the extent of financial debts owed to such creditor; (b) such person shall be considered to be an operational creditor to the extent of the operational debt owed by the corporate debtor to such creditor. (5) Where an operational creditor has assigned or legally transferred any operational debt to a financial creditor, the assignee or transferee shall be considered as an operational creditor to the extent of such assignment or legal transfer. Consortium [ Section 21(6) ] Where the terms of the financial debt extended as part of a consortium arrangement or syndicated facility provide for a single trustee or agent to act for all financial creditors, each financial creditor may- (a) authorise the trustee or agent to act on his behalf in the committee of creditors to the extent of his voting share; (b) represent himself in the committee of creditors to the extent of his voting share; (c) appoint an insolvency professional (other than the resolution professional) at his own cost to represent himself in the committee of creditors to the extent of his voting share; or (d) exercise his right to vote to the extent of his voting share with one or more financial creditors jointly or severally. Appointment of Authorised Representative [ Section 21(6A) ] (a) Where a financial debt is in the form of securities or deposits and the terms of the financial debt provide for appointment of a trustee or agent to act as authorised representative for all the financial creditors, such trustee or agent shall act on behalf of such financial creditors; (b) Where a financial debt is owed to a class of creditors exceeding the number as may be specified, other than the creditors covered under clause (a) of section 21(6A) or section 21(6), the interim resolution professional shall make an application to the Adjudicating Authority along with the list of all financial creditors, containing the name of an insolvency professional, other than the interim resolution professional, to act as their authorised representative who shall be appointed by the Adjudicating Authority prior to the first meeting of the committee of creditors; (c) Where a financial debt is represented by a guardian, executor or administrator, such person shall act as authorised representative on behalf of such financial creditors, and such authorised representative under clause (a) or clause (b) or clause (c) shall attend the meetings of the committee of creditors, and vote on behalf of each financial creditor to the extent of his voting share. Class of Creditors Section 21(6A) of the IBC states that a class of creditors can be represented by an Authorized Representative (AR). The interim resolution professional (IRP) is responsible for ensuring the AR s appointment. Regulation 2(1)(aa) defines a class of creditors as a class with at least 10 financial creditors under section 21(6A)(b), and the expression creditors in a class shall be construed accordingly. The provisions in respect of a class of creditors were introduced primarily to address the issue of representation of home-buyers (of which there were many) in the committee of creditors. While home-buyers are the most common class of creditors in a corporate debtors, there may be other creditors in a class, for instance, public deposit holders. Remuneration of Authorised representative [ Section 21(6B) ] The remuneration payable to the authorised representative- (i) under clauses (a) and (c) of section 21(6A), if any, shall be as per the terms of the financial debt or the relevant documentation; and (ii) under clause (b) of section 21(6A) shall be as specified which shall form part of the insolvency resolution process costs. Specify the voting manner in case of financial debts [ Section 21(7) ] The Board may specify the manner of voting and the determining of the voting share in respect of financial debts covered under sections 21(6) and section 21(6A). Decision taken by committee of creditors by voting [ Section 21(8) ] Save as otherwise provided in this Code, all decisions of the committee of creditors shall be taken by a vote of not less than fifty-one per cent. of voting share of the financial creditors: Provided that where a corporate debtor does not have any financial creditors, the committee of creditors shall be constituted and shall comprise of such persons to exercise such functions in such manner as may be specified. Furnishing Of financial information of corporate debtor [ Section 21(9) and (10) ] The committee of creditors shall have the right to require the resolution professional to furnish any financial information in relation to the corporate debtor at any time during the corporate insolvency resolution process. The resolution professional shall make available any financial information so required by the committee of creditors under section 21(9) within a period of 7 days of such requisition.