Voting Process in CoC and Voting Rights

 

Voting Process in CoC and Voting Rights

The voting process in the Committee of Creditors (CoC) is one of the key decision-making mechanisms during the CIRP. The voting process ensures that creditors with significant claims have more influence in the resolution process.

A. Voting Power and Share

1. Voting Rights Based on Debt:

   • Creditors in the CoC vote based on the value of their claims. For example, if a financial creditor holds 40% of the total debt, they will have 40% of the voting power in the CoC.

   • The voting rights of financial creditors are generally higher because they are the primary creditors in insolvency proceedings.

2. Operational Creditors:

   • Operational creditors (e.g., suppliers, service providers) also have the right to vote, but their voting power is generally lower because their claims tend to be smaller.

   • In certain cases where the operational creditors’ dues are large, they may have a stronger influence on decisions.

B. How Voting Works: Majority and Approval

1. 75% Majority Vote for Resolution Plan:

   • A resolution plan can only be approved if it receives the consent of 75% of creditors (by value of debt).

   • If the majority agrees, the plan is then submitted to the NCLT for final approval. If not, the debtor faces liquidation.

2. Simple Majority for Other Decisions:

   • For routine decisions (such as the appointment or removal of the Resolution Professional), a simple majority (50%) of creditors by value is enough to make decisions.

C. Voting Procedure

1. Electronic Voting:

   • The CoC meetings can be conducted through electronic means, ensuring transparency and allowing creditors to participate without being physically present.

2. Resolution for Voting:

   • The CoC typically votes on key decisions, such as:

     • Approval of the Resolution Plan.

     • Appointment and Removal of the Resolution Professional.

     • Extending the CIRP timeline.

     • Acceptance of the liquidation process, if the resolution plan is not approved.

D. Influence of Creditors in the CoC

• Financial creditors, who typically hold larger claims, have a significant influence on the decisions taken in the CoC.

• Operational creditors, despite being part of the CoC, often have limited voting power unless they have significant claims.

• The CoC members can form alliances or negotiate to influence the outcome of the resolution plan or the approach to liquidation.