Creditor Voting in CIRP

 

Creditor Voting in CIRP

A. Role of Creditors in the CIRP Process

Under the IBC, the Committee of Creditors (CoC) holds the primary decision-making authority. This committee is formed after the Corporate Insolvency Resolution Process (CIRP) is initiated and is composed mainly of financial creditors, though operational creditors also have a presence in certain cases.

B. Voting Power and Mechanism

1. Voting Power of Creditors:

   • The voting power of each creditor in the CoC is determined by the value of the debt they hold (i.e., the amount of money owed to them by the debtor).

   • Financial creditors generally hold greater voting power compared to operational creditors because they tend to be owed larger amounts.

2. Threshold for Approval:

   • 75% of the total voting share of the CoC (based on the value of claims) is required to approve any resolution plan. This supermajority ensures that the resolution plan has substantial creditor backing before it is sent for approval by the National Company Law Tribunal (NCLT).

   • The CoC can also decide on other major decisions by a simple majority (50% of the creditors by value), such as the appointment of the resolution professional or the removal of the resolution professional.

3. Voting Process:

   • The CoC meets at regular intervals, where creditors discuss and vote on key decisions, including the resolution plan.

   • Voting is typically done through electronic means to ensure transparency and ease of participation for all creditors.

4. Influence of Financial Creditors:

   • Financial creditors hold substantial influence in the decision-making process because they often constitute the majority vote in the CoC, especially when the value of the debt owed to them far exceeds that of operational creditors.

   • Operational creditors, while having a vote, generally have limited influence due to their relatively smaller share of the total debt.

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C. Rights of Operational Creditors in Voting

While financial creditors dominate in the CoC, operational creditors are also included in the decision-making process. Their voting rights are typically based on the amount of unpaid dues they have from the debtor.

1. Operational Creditors’ Voting Power:

   • Operational creditors can express their views and vote on the resolution plan, but their voting power is usually lesser compared to financial creditors.

   • In certain cases, if operational creditors are owed a significant amount (e.g., suppliers, service providers), they may have more influence, but generally, their claims are smaller compared to those of financial creditors.

2. Non-Voting Influence:

   • Although operational creditors have lower voting power, they can still voice concerns and influence decisions through discussions with financial creditors in the CoC.

   • Operational creditors can also challenge the resolution plan if they believe their interests are not adequately protected.