The Insolvency and Bankruptcy Code (Amendment) Code, 2018 (“the Amendment Code”) which came into effect on 6th June, 2018 provides for various amendments to the Insolvency and Bankruptcy Code, 2016 (“the Code”). Amongst the significant amendments in the Code is one pertaining to the reduction in the threshold limit, of the voting shares of financial creditors at a meeting of Committee of Creditors (“CoC“) for approval of a resolution plan, from 75% of the total voting share of financial creditors to 66% (“the Amendment“).
The Amendment raised concerns on how the voting share of financial creditors was computed and whether financial creditors who were not admitted as members of CoC would be considered as abstaining/dissenting.
To address this, the Insolvency and Bankruptcy Board of India (“the Board”) vide its circular no. IBBI/CIRP/018/2018 dated 14th September, 2018 (“the Circular”) clarified the position of such financial creditors with respect to their voting.
The Circular, while noting that Section 21 of the Code provides that the CoC shall comprise all financial creditors of the corporate debtor, clarifies that the CoC is to be constituted of financial creditors whose claims have been admitted.
The Circular further clarifies that
- A financial creditor whose claim has not been admitted can become a member of the CoC as and when its claim is admitted;
- any subsequent admission of a financial creditor as a member of the CoC does not effect any decision of the CoC taken prior to such admission; and
- a financial creditor not being a member of the CoC does not have any voting right in the CoC and cannot be regarded as a dissenting financial creditor or a financial creditor who has abstained from voting.
Consequently, since financial creditors whose claims have not yet been admitted are not dissenting financial creditors, it is pertinent to note that the resolution plan need not mandatorily provide for any payment to such financial creditors.
Thus, it is now clear that the admission of claims is the cornerstone of participation in the CoC by financial creditors.
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