What role does the committee of creditors play in the insolvency resolution process?

Question

My bank is a financial creditor of a company under CIRP and has been included in the committee of creditors. What powers and voting rights does the committee have? What I am unsure about is the procedure — where the application goes, what it costs, and how long committee of creditors ibc matters usually take. A plain explanation of the steps, in order, would help more than a general answer.

MyVakeel Legal Desk · Accepted Answer

The law that applies to committee of creditors ibc here is Insolvency and Bankruptcy Code 2016, Section 21, Insolvency and Bankruptcy Code 2016, Section 22 and Insolvency and Bankruptcy Code 2016, Section 30. The detail below matters, because Insolvency and Bankruptcy Code 2016, Section 21 draws the line differently depending on what your documents show.

Section 21 requires the interim resolution professional to constitute a committee of creditors comprising all financial creditors of the corporate debtor, with voting share generally proportionate to the amount of debt owed to each.

Section 22 empowers the committee of creditors to confirm the appointment of the interim resolution professional as resolution professional or replace them with a majority vote of not less than sixty-six percent.

The committee reviews resolution plans submitted by prospective resolution applicants under Section 30 and approves a plan by a vote of not less than sixty-six percent of voting share before it is placed before the NCLT for sanction.

The Supreme Court has repeatedly held that the commercial wisdom of the committee of creditors in approving or rejecting a resolution plan is largely non-justiciable and courts will not second-guess the commercial decision except on limited procedural grounds.

Operational creditors, while not members of the committee, are entitled to a minimum payout under the resolution plan that is not less than what they would receive in liquidation.

What this means for you: 1) Verify your admitted claim amount to ensure correct voting share in the committee of creditors; 2) Participate actively in committee meetings and scrutinise resolution plans presented for approval; 3) Vote in accordance with your institution's internal credit and risk assessment of the resolution plan; 4) Consult insolvency counsel before objecting to a plan already approved by the requisite majority.

Where the facts are disputed, what usually decides a committee of creditors ibc matter is the paper trail — dated complaints, acknowledgments and written replies under Insolvency and Bankruptcy Code 2016, Section 21. You can post the details on the MyVakeel forum for a practising advocate to review, or book a paid consultation with a Bar Council verified lawyer in corporate law.