Real-Life Example of CoC Voting and Negotiations

 

Real-Life Example of CoC Voting and Negotiations

Scenario:

• Company ABC, a tech firm, has defaulted on its loans. The CoC comprises Bank X, Bank Y, and a group of operational creditors.

• A resolution plan is submitted by Company M, an investor, proposing:

  • Debt restructuring: A 3-year moratorium and repayment over 10 years for financial creditors.

  • Operational creditors will receive 60% of their dues.

Step-by-Step Process:

1. Initial Vote by CoC:

   • Bank X (holding 50% of claims) and Bank Y (holding 30%) vote in favor of the plan.

   • The operational creditors (with 20% of claims) vote against the plan, as they demand 80% of their dues.

2. Negotiation:

   • Company M offers operational creditors equity in the company in exchange for their reduced payment. This helps the operational creditors have ownership and potential future profits.

   • After further negotiations, the operational creditors agree to the plan if they receive 70% of their dues instead of the original 60%.

3. Revised Vote:

   • The CoC reconvenes, and the revised plan receives approval with the 75% majority (by value of claims).

4. Final Approval by NCLT:

   • The plan is approved by the National Company Law Tribunal (NCLT), and Company ABC avoids liquidation, leading to recovery for the creditors and business continuity.