The Insolvency and Bankruptcy Board of India (IBBI) has introduced guidelines for the Committee of Creditors (CoC) that steer the insolvency resolution to stem the value erosion that occurs due to delays in procedures and bring more transparency to the process.
The self-regulating guidelines require the CoC to maintain integrity, confidentiality, and objectivity during the decision-making process and disclose any conflict of interest.
To ensure their professional competence, the CoC must keep themselves updated with the provisions of the Code, rules, and regulations, according to the guidelines.
In order to improve value realisation, the IBBI guidelines have said that the CoC should duly contribute to the preparation of the marketing strategy by the insolvency professional and take measures for the marketing of the assets of the corporate debtor.
IBBI has said that the CoC should try to resolve any disputes between the members, particularly in relation to claims, through dialogue or other non-adversarial means, to avoid litigation to the extent possible.
“The need for such guidelines arose in the context of the fact that the members of the Committee of Creditors were seen taking myopic decisions to benefit their institutions on a case-to-case basis rather than objective, consistent, and commercial decisions,” said Misha, Partner, Shardul Amarchand Mangaldas & Co.
The CoC should proactively share the latest financial statements, relevant extracts from the audits of the insolvency company conducted by the creditors such as stock audit, transaction audit, forensic audit, etc., and other relevant information available with the insolvency professional to enable efficient conduct of the process, the insolvency regulator said.
“The guidelines for the Committee of Creditors (CoC) were a much-needed ‘rule book’ of certain do’s and don’ts given the vital role that CoCs play in the insolvency resolution process. In recent times, there has been a rise in inter-creditor conflicts leading to a rise in inter-creditor disputes that tribunals have been busy with,” said Sushmita Gandhi, Partner, IndusLaw.
Under the Insolvency and Bankruptcy Code, 2016, the commercial wisdom of the CoC drives the procedures to attain the objective of value maximisation of the distressed assets.
The members of the CoC largely represent financial creditors, and most of them are under the regulatory oversight of financial sector regulators other than IBBI.
First Published: Aug 08 2024 | 5:51 PM IST
