Section 21: Committee of Creditors

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The Bankruptcy and Bankruptcy Code, 2016

Part II Insolvency Solution and Liquidation for Corporate Persons

Chapter II Insolvency Resolution Procedure for Companies (CIRP)

§ 21 Creditors’ Committee.

* *21. (1) The Interim Resolution Professional forms a creditors’ committee after the compilation of all claims against the corporate debtor and determination of the corporate debtor’s financial position.

(2) The creditors’ committee is composed of all financial creditors of the corporate debtor:

Provided that a 1[financial creditor or the authorised representative of the financial creditor referred to in sub-section (6) or sub-section (6A) or sub-section (5) of section 24, if it is a related party of the corporate debtor,] has no right to represent, attend or vote in a meeting of the creditors’ committee.

2[Provided further that the first proviso shall not apply to a financial creditor, regulated by a financial sector regulator, if it is a related party of the corporate debtor solely on account of conversion or substitution of debt into equity shares or instruments convertible into equity shares 3[or completion of such transactions as may be prescribed]before the start of bankruptcy.]

(3) 4[Subject to sub-sections (6) and (6A), where] The corporate debtor owes financial debt to two or more financial creditors under a consortium or agreement. Each of these financial creditors is part of the creditors’ committee and their voting share is determined based on the financial debt owed to them.

(4) If a person is both a financial creditor and an operational creditor, –

(a) This person is a financial creditor equal to the financial debt owed by the corporate debtor and is included on the creditors’ committee
Share of voting rights in relation to the amount of financial debt towards this creditor;

(b) That person is deemed to be an Operating Creditor for the amount of the Operating Debt that the Corporate Debtor owes that Creditor.

(5) If an operational creditor has assigned or lawfully transferred an operational debt to a financial creditor, the assignee or purchaser shall be deemed to be an operational creditor to the extent of such an assignment or statutory transfer.

(6) If the terms of the financial debt have been extended under a syndicated agreement or a syndicated facility 5[*] Each financial creditor may provide that a single trustee or agent act on behalf of all financial creditors.

(a) authorize the trustee or agent to act on his behalf on the creditors’ committee to the extent of his share of the voting rights;

(b) represent themselves on the creditors’ committee to the extent of their share of the voting rights;

(c) appoint an insolvency administrator (other than the liquidation specialist) at his own expense, who will represent himself on the creditors’ committee to the extent of his share of the voting rights; or

(d) exercise his voting rights to the extent of his share of the voting rights with one or more financial creditors jointly or severally.

6th[(6A) Where a financial debt—

(a) is in the form of securities or deposits and the terms of the financial debt provide for appointment of a trustee or agent to act as authorised representative for all the financial creditors, such trustee or agent shall act on behalf of such financial creditors;

8(b) is owed to a class of creditors exceeding the number as may be specified, other than the creditors covered under clause (a) or sub-section (6), the interim resolution professional shall make an application to the Adjudicating Authority along with the list of all financial creditors, containing the name of an insolvency professional, other than the interim resolution professional, to act as their authorised representative who shall be appointed by the Adjudicating Authority prior to the first meeting of the committee of creditors;

(c) is represented by a guardian, executor or administrator, such person shall act as authorised representative on behalf of such financial creditors,

and such authorised representative under clause (a) or clause (b) or clause (c) shall attend the meetings of the committee of creditors, and vote on behalf of each financial creditor to the extent of his voting share.

(6B) The remuneration payable to the authorised representative-

(i) under clauses (a) and (c) of sub-section (6A), if any, shall be as per the terms of the financial debt or the relevant documentation; and

(ii) under clause (b) of sub-section (6A) shall be as specified which shall be jointly borne by the financial creditors.]

7th[(7) The Board may specify the manner of voting and the determining of the voting share in respect of financial debts covered under sub-sections (6) and (6A).

(8) Save as otherwise provided in this Code, all decisions of the committee of creditors shall be taken by a vote of not less than fifty-one per cent. of voting share of the financial creditors:

   Provided 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.]

(9) The creditors’ committee has the right to require the resolution specialist to provide financial information relating to the corporate debtor at any time during the company’s insolvency proceedings.

(10) The resolution specialist shall provide all financial information required by the creditors’ committee in accordance with paragraph 9 within seven days of this request.

reference

* This comes into force on December 1st, 2016.

1. Replaced by the Insolvency and Insolvency Act (second amendment) of 2018 for the word “related person to whom a corporate debtor owes a financial debt” subject to Section 21 (2) (June 6, 2018).

2. Subject to Section 21, Paragraph 2 inserted by the Act on Insolvency and Insolvency Act (second amendment) of 2018 (wef 06.06.2018).

3. Ins. by the Insolvency and Insolvency Act (amendment), 2020, dated December 28, 2019.

4. Replaced by the Insolvency and Insolvency Act (Second Amendment) of 2018 for the word “Where” in Section 21 Subsection (3) (wef 06.06.2018).

5. From the Insolvency and Insolvency Act (Second Amendment) of 2018, the word “or issued as securities” in Section 21 subsection (6) (wef 06.06.2018) is omitted.

6. Subsections (6A) and (6B) of Section 21, inserted by the Act on the Insolvency and Insolvency Act (Second Amendment) of 2018 (wef 06.06.2018).

7. Replaced by the Insolvency and Insolvency Act (Second Amendment), 2018, wef 06.06.2018. Before the replacement of subsections (7) and (8) together with the reservation of section 21 as follows:

“(7) The Board of Directors may determine the manner in which the voting rights proportion is determined in relation to financial debt issued as securities in accordance with subsection (6).

(8) All decisions of the creditors’ committee are made with a vote of at least seventy-five percent. of the voting share of the financial creditors:

If a corporate debtor has no financial creditors, the creditors’ committee is formed and consists of those persons who exercise the functions specified by the board of directors. “

8. Circular No. IBBI / CIRP / 015/2018, July 13, 2018, Appointment of an agent for classes of credit under Section 21 (6A) (b) of the Bankruptcy and Insolvency Act, 2016.

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