{"id":21938,"date":"2023-04-19T14:27:59","date_gmt":"2023-04-19T08:57:59","guid":{"rendered":"https:\/\/gstguntur.com\/?p=21938"},"modified":"2023-04-19T14:28:47","modified_gmt":"2023-04-19T08:58:47","slug":"convening-and-conduct-of-meetings-of-committee-of-creditors-cs-professional-study-material","status":"publish","type":"post","link":"https:\/\/gstguntur.com\/convening-and-conduct-of-meetings-of-committee-of-creditors-cs-professional-study-material\/","title":{"rendered":"Convening and Conduct of Meetings of Committee of Creditors – CS Professional Study Material"},"content":{"rendered":"

Chapter 18 Convening and Conduct of Meetings of Committee of Creditors – Corporate Restructuring Insolvency Liquidation & Winding Up Notes<\/a> is designed strictly as per the latest syllabus and exam pattern.<\/p>\n

Convening and Conduct of Meetings of Committee of Creditors – Corporate Restructuring Insolvency Liquidation & Winding Up Study Material<\/h2>\n

Question 1.
\nA resolution plan has been submitted in respect of the company PQR Ltd. and the resolution plan is yet to be confirmed. The committee of creditors resolved to liquidate PQR Ltd. approved by not less than sixty-five percent of the voting share. Can liquidation be ordered? (June 2019, 5 marks)
\nAnswer:
\nSection 33(2) of the Insolvency and Bankruptcy Code, 2016 provides that where the resolution professional, at any time during the corporate insolvency resolution process but before confirmation of resolution plan, intimates the Adjudicating Authority of the decision of the committee of creditors approved by not less than sixty-six per cent of the voting share to liquidate the corporate debtor, the Adjudicating Authority shall pass a liquidation order.<\/p>\n

In the instant question the approval of the resolution to liquidate PQR Ltd. by the creditors having sixty-five percent of the voting share is not sufficient. The decision of the committee of creditors should be approved by not less than sixty-six percent of the voting share. Hence, the liquidation of PQR Ltd. cannot be ordered.<\/p>\n

Thus, according to Section 21 (4) of the Code, Y Ltd. shall be included in the committee of creditors and shall have a voting share proportionate to the extent of financial debts owed to such creditor. In the instant case, to the extent of \u20b9 100 lakh, Y Ltd. being a financial creditor.<\/p>\n

\"Convening<\/p>\n

Question 2.
\nCan financial creditor who is related party to corporate debtor have any right of representation, participation or voting in a meeting of the committee of creditors.
\nAnswer:
\nFirst proviso to section 21(2) provides that a financial creditor or the authorised representative of the financial creditor, if it is a related party of the corporate debtor, shall not have any right of representation, participation or voting in a meeting of the committee of creditors.<\/p>\n

Question 3.
\nDefine \u201crelated party\u201d as per The Insolvency and Bankruptcy Code?
\nAnswer:
\nAccording to section 5(24), a \u201crelated party\u201d, in relation to a corporate debtor, means-
\n(a) a director or partner of the corporate debtor or a relative of a director or partner of the corporate debtor;<\/p>\n

(b) a key managerial personnel of the corporate debtor or a relative of a key managerial personnel of the corporate debtor;<\/p>\n

(c) a limited liability partnership or a partnership firm in which a director, partner, or manager of the corporate debtor or his relative is a partner;<\/p>\n

(d) a private company in which a director, partner or manager of the corporate debtor is a director and holds along with his relatives, more than two per cent, of its share capital;<\/p>\n

(e) a public company in which a director, partner or manager of the corporate debtor is a director and holds along with relatives, more than two per cent, of its paid- up share capital;<\/p>\n

\"Convening<\/p>\n

(f) anybody corporate whose board of directors, managing director or manager, in the ordinary course of business, acts on the advice, directions or instructions of a director, partner or manager of the corporate debtor;<\/p>\n

(g) any limited liability partnership or a partnership firm whose partners or employees in the ordinary course of business, acts on the advice, directions or instructions of a director, partner or manager of the corporate debtor;<\/p>\n

(h) any person on whose advice, directions or instructions, a director, partner or manager of the corporate debtor is accustomed to act;<\/p>\n

(i) a body corporate which is a holding, subsidiary or an associate company of the corporate debtor, or a subsidiary of a holding company to which the corporate debtor is a subsidiary;<\/p>\n

(j) any person who controls more than twenty per cent, of voting rights in the corporate debtor on account of ownership or a voting agreement;<\/p>\n

(k) any person in whom the corporate debtor controls more than twenty per cent, of voting rights on account of ownership or a voting agreement;<\/p>\n

(l) any person who can control the composition of the board of directors or corresponding governing body of the corporate debtor;
\n(m) any person who is associated with the corporate debtor on account of-<\/p>\n

    \n
  1. participation in policy making processes of the corporate debtor; or<\/li>\n
  2. having more than two directors in common between the corporate debtor and such person; or<\/li>\n
  3. interchange of managerial personnel between the corporate debtor and such person; or<\/li>\n
  4. provision of essential technical information to, or from, the corporate debtor.<\/li>\n<\/ol>\n

    \"Convening<\/p>\n

    Question 4.
    \nCan financial creditor who is also a operational creditor have any right of representation, participation or voting in a meeting of the committee of creditors.
    \nAnswer:
    \nSection 21 (4) provides that where any person is a financial creditor as well as an operational creditor, then such person shall be considered a financial creditor to the extent of the financial debt owed by the corporate debtor. Such person shall be included in the committee of creditors and shall have a voting share proportionate to the extent of financial debts owed to such creditor.<\/p>\n

    Thus, financial creditors who are also operational creditors are given representation on the committee of creditors only to the extent of their financial debts.<\/p>\n

    \"Convening<\/p>\n

    Question 5.
    \nA decision is taken by the committee of creditors holding 45% of voting share. Does a decision hold good under section 21 of Insolvency and Bankruptcy Code.
    \nAnswer:
    \nSub-section (8) to section 21 of the Code provides that except as otherwise provided in the 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. Does a decision taken by the committee of creditors holding 45% of voting share is not valid.<\/p>\n

    Question 6.
    \nSection 28 of the Code lists out certain actions that may be taken by the resolution professional only with the prior approval of the committee of creditors by a vote of certain percentage of the voting shares. One such action is taken by resolution professional based on approval of the committee of creditors by a vote of 51 % percentage of the voting shares. Is it valid as per section 28 of Insolvency and Bankruptcy Code.
    \nAnswer:
    \nSection 28 of the Code lists out certain actions that may be taken by the resolution professional only with the prior approval of the committee of creditors by a vote of 66 per cent of the voting shares. Does a decision taken by the committee of creditors holding 51% of voting share is not valid.<\/p>\n

    \"Convening<\/p>\n

    Question 7.
    \nExplain Section21(2) as per the Insolvency arid Bankruptcy Code (Amendment) Ordinance, 2019 ?
    \nAnswer:
    \nSection 21(2): The committee of creditors shall comprise all financial creditors of the corporate debtor:
    \nProvided that a 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, shall not have any right of representation, participation or voting in a meeting of the committee of creditors.<\/p>\n

    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 or completion of such transactions as may be prescribed, prior to the insolvency commencement date.<\/p>\n

    \"Convening<\/p>\n

    Question 8.
    \nExplain the role of the Committee of Creditor in the CIR process by giving suitable case law?
    \nAnswer:<\/p>\n