Creditor Decision-Making Process in CIRP

 

A. Committee of Creditors (CoC)

Once the Corporate Insolvency Resolution Process (CIRP) is initiated, the Committee of Creditors (CoC) is formed. The CoC plays a central role in determining the direction of the insolvency process, especially regarding the resolution plan.

1. Composition of CoC:

   • The CoC is primarily composed of financial creditors (like banks, financial institutions, bondholders, etc.), but operational creditors also have a role in certain cases.

   • The CoC’s membership is determined based on the quantum of debt each creditor holds.

2. Decision-making by CoC:

   • Resolution Plan Approval: One of the most critical roles of the CoC is to approve or reject the resolution plan put forward by the debtor or an external bidder.

   • Majority Voting: The CoC must approve the resolution plan by a 75% majority (by value of the financial creditors' claims).

     • If the majority of the financial creditors approve the plan, the resolution plan is submitted to the National Company Law Tribunal (NCLT) for final approval.

3. Decision-Making Powers:

   • Supervisory Role: The CoC supervises the Interim Resolution Professional (IRP), ensuring that the process runs smoothly.

   • Debt Restructuring and Compromise: The CoC also has the authority to approve any restructuring, compromise, or settlement of the debtor’s obligations.

   • Liquidation Decision: If the resolution plan is not approved or the process fails, the CoC can decide to initiate liquidation.

4. Voting and Creditor Influence:

   • Voting Share: Financial creditors generally have a greater influence in the CoC as they often hold a larger portion of the debtor’s debt.

   • Operational Creditors: Although operational creditors are part of the CoC, their voting power is limited due to the dominance of financial creditors.

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B. Creditors' Rights in Decision-Making

1. Filing Claims:

   • Creditors, both financial and operational, have the right to file their claims within the stipulated period (14 days from the IRP's appointment).

   • The claims submitted must be verified by the IRP, and only verified claims are considered by the CoC in decision-making.

2. Participation in Meetings:

   • Creditors (or their representatives) can attend CoC meetings and voice their concerns.

   • Active Participation: Creditors can actively participate in discussions about the resolution plan and suggest modifications if necessary.

3. Challenging Decisions:

   • If creditors feel that decisions made during the CIRP are unfair or illegal, they can challenge the CoC’s decision by filing an application before the NCLT.

4. Right to be Paid:

   • Creditors have the right to be paid according to the priority of claims once a resolution plan is approved or, in the case of liquidation, according to the liquidation waterfall under the IBC.