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IBCInsolvency & Bankruptcy CodeInsolvency Resolution Process When There Exist Only Operational Creditors

October 8, 2018by GLC & Partners


Section 6 of the Insolvency and Bankruptcy Code, 2016 (the “Code”) provides for “Persons who may initiate corporate insolvency resolution process” wherein the financial creditor, operational creditor or the corporate debtor itself, may “initiate the insolvency resolution process”.

An application for insolvency of a corporate debtor or corporate person may be filed under Sections 7, 8 and 9 of the Code by those persons mentioned under Section 6.

Section 21(8) provides that “where a corporate debtor does not have any financial creditors, the committee of creditors shall be constituted and shall comprise of such persons to exercise such functions in such manner as may be specified”

In cases where the corporate debtor does not have any financial creditors or where the financial creditors are “related party” (defined under Section 5(24A)) to the corporate debtor, once the insolvency resolution process has been initiated, a committee consisting solely of such operational creditors can be set up in accordance with Regulation 16 under IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (Amended upto 04.07.2018).

16Committee with only operational creditors

(1) Where the corporate debtor has no financial debt or where all financial creditors are related parties of the corporate debtor, the committee shall be set up in accordance with this Regulation.

(2) The committee formed under this Regulation shall consist of members as under –

(a) eighteen largest operational creditors by value:

Provided that if the number of operational creditors is less than eighteen, the committee shall include all such operational creditors;

(b) one representative elected by all workmen other than those workmen included under sub-clause (a); and

(c)one representative elected by all employees other than those employees included under sub-clause (a).

(1) A member of the committee formed under this Regulation shall have voting rights in proportion of the debt due to such creditor or debt represented by such representative, as the case may be, to the total debt.

Explanation — For the purposes of this sub-regulation, ‘total debt’ is the sum of-

(a) the amount of debt due to the creditors listed in sub-regulation 2(a);

(b) the amount of the aggregate debt due to workmen under sub-regulation 2(b); and

(c) the amount of the aggregate debt due to employees under sub-regulation 2(c).

(d) A committee formed under this Regulation and its members shall have the same rights, powers, duties and obligations as a committee comprising financial creditors and its members, as the case may be.”