Section 21 of IBC : Section 21: Committee Of Creditors

Explanation using Example

Imagine a company, XYZ Pvt. Ltd., is unable to pay its debts and enters into insolvency proceedings. An interim resolution professional (IRP) is appointed to manage the company's affairs. The IRP gathers all claims against XYZ Pvt. Ltd. and evaluates its financial position.

Following this, the IRP sets up a Committee of Creditors (CoC), which includes all financial creditors, such as banks and financial institutions that have lent money to XYZ Pvt. Ltd. However, if any of these financial creditors are related parties to the company (like a subsidiary company), they cannot participate in the CoC meetings or vote, unless they are regulated financial sector entities and the relationship is due to debt-to-equity conversions before insolvency started.

If XYZ Pvt. Ltd. had taken loans as part of a consortium, each lender in that consortium would be part of the CoC and their vote would be proportional to the debt owed to them.

Suppose there is a creditor who has both operational and financial claims against XYZ Pvt. Ltd. In that case, they would be part of the CoC to the extent of their financial claims and vote accordingly, while their operational claims would be dealt with separately.

If an operational creditor sold their debt to a financial creditor, the buyer would then be considered an operational creditor for that part of the debt.

For syndicated loans with a common trustee, financial creditors can choose to let the trustee represent them, represent themselves, hire an insolvency professional to represent them, or vote directly in the CoC.

The CoC makes decisions with at least 51% majority of the financial creditors' voting share. They can also ask the resolution professional for any financial information about XYZ Pvt. Ltd. during the insolvency process, which must be provided within seven days.