Managing The Committee of Creditors Under The Insolvency and Bankruptcy Code

Brief Introduction to the code

IBC came into existence by the government notification on 28 May 2016. The Act consolidates and amends the existing laws relating to liquidation and insolvency of corporates, partnership, and individuals in a time-bound manner. In the interest of the stakeholders and the creditors, IBC aims to ensure smoother settlement of insolvency cases. Before this code, there was no single law to deal with insolvency and bankruptcy in India. Few acts and legislation which were used to deals with liquidation and insolvency cases of corporate, firm and individual that existed before IBC Code are Sick Industrial Companies (Special Provisions) Act- SICA, 1985, The Securitization and Reconstruction of Financial Assets and Enforcement of Security interest (SARFAESI) Act, 2002, Recovery of debt due to Banks and Financial Institution Act, 1993, The Companies Act, 2013.

Other enactments for partnership and individual insolvencies, such as individual cases were dealt under the Presidency Towns Insolvency Act and Provisional Insolvency Act. Liquidation of companies was handled by the High Courts. The code consolidates all these insolvency and liquidation proceedings for the individual, corporate and firm and provides a single platform for the resolution.

The IBC Ecosystem

Adjudicating Authority

A body that would have exclusive jurisdiction to deal with the insolvency-related matter and can entertain or dispose of any insolvency application, approve or reject resolution plans and can decide in respect of claims or other matters.

Insolvency and Bankruptcy Board of India

A body that would consist of members including a representative from MCA, MoF, and RBI and would regulate the appointment of insolvency professionals, information utilities and promote transparency and governance in the administrating of the code.

Information Utilities

Professional bodies registered with the board that would collect, maintain and provides information relating to the indebtedness of the companies.

Insolvency professional agency

A Body that would admit insolvency professionals as members and develop a code of conduct and promote transparency and best practices and governance

CoC

Consists of financial creditors who will appoint and supervise and approve the action of resolution professionals. The code mandates all classes of creditors (financial, operational, regulatory authority) to initiate a resolution process in case of a default by filing an application with NCLT. The code provides for the immediate suspension of the Board of Directors and promoters power and requires the insolvency professional to take control of the corporate debtor. The primary reason behind dissolving the Board of Directors and promoters and handing over the management to the RP is to prevent the mismanagement of the corporate debtor that could eventually be detrimental to the interest of its creditors and stakeholders during the Corporate Insolvency Resolution Process (CIRP). The RP is expected to take steps to protect and preserve the stake of the corporate debtor and manage its operations on a going concern basis.

The code provides 180 days for the resolution process with 90 days extension to inculcate a balanced approach between rehabilitation and recovery of the health of the corporate debtor and provides for mandatory liquidation in case resolution plan is not approved by the authority.

When the CIRP process begins, NCLT makes a public announcement and appoints an Interim Resolution Professional (IRP). The IRP constitutes a committee of creditors (CoC) after the determination of the financial position and collation of all the claims received against the corporate debtor. The CoC comprises of all the financial creditors of the corporate debtor. The voting share of the CoC is determined on the basis of financial debt owed by the Corporate Debtor. The IRP holds meetings for the CoC to discuss the current situation, give a business update and vote upon various agendas relating to the business of the company and insolvency process. The CoC may, in the first meeting either resolve to appoint the IRP as a Resolution Professional (RP) or to replace the IRP by another RP.