Managing the Committee of Creditors under the Insolvency and Bankruptcy
Code (IBC), 2016
Insolvency and Bankruptcy Code
came into picture at a time when the non-performing assets in the Indian
Banking industry had reached their peak. The code amalgamates various
restructuring laws in India, so as to provide a time bound resolution to the
ailing companies. It entails the suspension of the power of the Board, while
the Resolution Professional (RP) as appointed by the court takes over the
management of the company.
Claims and reconciliation
As per the Code, the RP is
required to invite claims vide a public announcement. The claims would include
any amount owed by the Debtor, including operational, financial creditors and
workmen and employees. Proof of claims by the creditors have to be submitted in
the prescribed forms which would be collated and verified with respect to the
names of the creditors, amount claimed and admitted by the RP within 7 days of
the last date of the receipt of the claims.
The biggest challenge while
reconciling the claims is that of bogus or duplicate claims. A lot of claims
are filed repeatedly with crucial information missing in them. In case of a
debtor, where the number of claim forms is huge, it is important to inculcate
various checks in between. Some of the checks that could be inculcated are
rechecking the data on a batch basis, random basis, materiality basis etc.
Also, claims might be received
regarding the related parties. For example, an insolvent company, say “A” has a
subsidiary company “B” and holding company “C” and all three companies have
similar creditors. In such a case, there is a chance that the claims could be
filed for B and C both to A. In such a case, extreme caution is necessary to
not include any other party’s claim as it not only impacts our financial
position but also impacts the voting power of the CoC.
A keen monitoring on the claims
is also necessary, as there are times when the value of the claim could change.
For instance, if a financial creditor invoked its guarantee or any third party
security, the claim amount would change, and can even lead to the change in the
constitution of the CoC.
Formation of the committee of the creditors
It is the duty of the RP under
the code to constitute the committee of creditors (CoC). The committee would
comprise of the financials creditors, or the operational creditors in a case
when there are no financial creditor or all financial creditors are related
parties. The voting share of each
creditor is determined on the basis of the debt owed by them to the company.
The constitution of the CoC is then filed with the ITAT within 30 days of the
appointment of RP.
The CoC is updated upon required
matters and also required to vote on various agendas through the conduct of CoC
meeting. There are certain items which mandate the approval of the CoC for example raising interim finance, creation
of security interest, changing the capital structure, undertake related party
transactions, make changes in the management of the debtor or its subsidiary,
make the appointment or change the terms of the contract of the statutory
auditor and so forth.
Managing the Committee of Creditors:
As required by section 21 of the
code the first the first meeting of the CoC should be held within 7 days of
filing the report with ITAT. As a part of the duty as the Resolution
Professional, stated under Section 25 (2) (f) of the Code, the RP must convene
a meeting of the CoC on an on-going basis throughout the CIRP process. The first
CoC is one of the most crucial ones as they RP needs to apprise the CoC about
their claim amount and voting share, showcase the understanding of the business
as gained by him, updating them on the operations of the company and the
resolution process post appointment while incorporating the cash flow position
and other key financial numbers of the company.
Another important decision that
needs to be taken in the first CoC is the appointment from Interim Resolution
Professional (IRP) to a Resolution Professional (RP) by at least 75% in
majority in favor.
Organizing and managing the CoC
is a three step process that require actions to be taken by the RP Pre-CoC,
during the CoC and Post CoC to ensure a productive outcome from the meeting
which would benefit all the stakeholders involved in the CIRP process.