Committee of Creditors under IBC: Roles & Responsibilities, Composition, Powers & More

Established under Section 21 of insolvency and bankruptcy code, a committee of creditors play a significant role in the corporate insolvency process. Let’s discuss this in detail.

In order to maximise the efficiency of the corporate insolvency process, the resolution plan is developed for the company based on the advice and recommendations of the committee of creditors. 

According to the insolvency and bankruptcy code, a company or an individual registered under the Companies Act of 1956 or any operational or financial creditor as per the code can file for the corporate insolvency process against the corporate debtor. The process can only be initiated if the debtor has defaulted in repayment of debts.

Defining: Committee of Creditors

The committee or creditors plays a key role in the insolvency process. The committee of creditors is deemed as a higher-level judicial body as it initiates and oversees the corporate insolvency process. A committee of creditors is established under rule 21 of the code to carry out the duties of the interim resolution professional and solicit claims from all creditors. The committee of creditors shall be formulated no later than 14 days after the public announcement and after the claim has been verified.

As the code mandates, a committee of creditors should include each and every financial creditor. It also identifies the financial and operational creditors separately as per the code’s rules.

The party to whom a debt and interest are owed is a financial creditor. Examples include bondholders, banks, guarantors, homebuyers, etc. On the other hand, an operational creditor is a person who is in possession of debts pertaining to the distribution of products and services, such as employee and government fees, etc.

Roles and Responsibilities of Committee of Creditors

There are several roles and responsibilities of committee of creditors concerning the corporate insolvency process as per the Insolvency and Bankruptcy code, some of which are outlined below:

• All significant decisions are made after the approval of the committee of creditors.
• The committee of creditors is responsible for making decisions regarding the restoration of the corporate debtor by authorising the resolution plan. 
• They hold regular meetings during which the rules for the working of interim resolution experts are discussed that eventually decide the fate of the corporate debtor. 
• The committee of creditors operates on the administrative decisions made by the resolution professional.
• They choose the interim resolution professional as the resolution professional, or they may even choose to appoint the insolvency professional in place of the interim resolution professional.
• They are in charge of reviewing the resolution plan, approving it, and making necessary modifications. When the committee of creditors is certain that the suggested resolution plan is effective and viable, they can vote to adopt it with a majority of more than 66%.

The Powers of Committee of Creditors (CoC)

A board of creditors serves as an authoritative body and is heavily involved in decision-making. It also controls the proceedings, moves, and roles of the creditors. They are given the following powers in accordance with the code’s regulations:

1. The committee of creditors can decide how the corporate debtor will operate on a daily basis and can make crucial decisions in the company’s favour. 
2. When there is a suspicion of wrongdoing, they can approach the adjudicating authority – NCLT. 
3. If necessary, they can submit an application to the adjudicatory body to replace the interim resolution professional.
4. They can move forward with the corporate debtor’s liquidation procedure even if no resolution plan has been approved. 
5. They have the authority to make any decision on behalf of the corporate debtor by using their expertise judgement. This is attributed to the committee of creditors as they are knowledgeable about the issue and capable of handling the critical circumstances the distressed company is  facing.
6. Additionally, they can be equipped with the power to shorten the notice period, which can be from five between 24 hours to 5 days, but only when required. If an authorised response exists, the minimum notice period is 48 hours.

As a result, the committee of creditors is explicitly granted all the powers mentioned above under the Insolvency and Bankruptcy Code.

Conclusion

The points mentioned above have provided insight into the role and responsibilities of the committee of creditors and how they can execute their powers properly to complete the corporate bankruptcy resolution process. Despite the circumstances and expectations change based on the case they are working with, the essential requirements to continue participating as a committee member are the same. CIRP is a remedial mechanism curated to assist insolvency companies regain their financial footing. However, it can still be a lengthy and time-consuming process. Nevertheless, nowadays, with the use of updated Insolvency technology, you can escape the delay and get fast and accurate updates of the status of your case.