Sunday, January 17, 2021

Need to look at issues of operational creditors under IBC: Experts

- Advertisement -

Amendment made to insolvency norms for corporate personsNew Delhi (IANS) As the Insolvency and Bankruptcy Code (IBC) has evolved over the past three and a half years, with several changes and improvements, operational creditors still largely feel sidelined or neglected when it comes to recovery of dues. Experts suggested that their issues should be looked at and necessary changes must be brought in to address them.

According to Sonam Chandwani, Managing Partner at KS Legal & Associates, with IBC’s waterfall mechanism leaving the operational creditors out, this class of creditors often takes massive haircuts on the outstanding monies owed to them.

“Presently, financial creditors are responsible to provide a fair share of claims by operational creditors who do not form a part of the Committee of Creditors. This myopic vision of the financial creditors to enhance their own realisation could bring the sustainability of operational creditors on the line, leaving a long-lasting scar on the corporate debtor itself in the long run,” she noted.


Daizy Chawla, Senior Partner with Singh & Associates, however, was of the view that although the operational creditors receive almost nothing both in case of a successful resolution and liquidation, it must be noted that the intention of IBC was not recovery. The objective of same was revival of the corporate debtor, she noted.

READ ALSO:  Higher ease of doing business ranking need not lead to greater investment: Report

“It’s for this reason that there is no hierarchy defined under the IBC 2016 for implementation of the resolution plan,” Chawla told IANS.

Noting that the distribution hierarchy or waterfall mechanism is provided in case of liquidation under Section 53 of the Code, she said that courts, during judicial interpretation in various cases, have held that the mechanism provided under Section 53 of the Code can be followed with regard to distribution during the resolution plan.

“Further, the CoC have been given the authority as to how to deal with the proceeds received from the successful resolution applicant, so unless the successful resolution applicant proposes to pay operational creditors, the CoC generally proceeds with distributing the proceeds to financial creditors only as the CoC consist of financial creditors,” she added.

However, Chawla was of the view that if it is considered that one of the objectives of the IBC is to repay the debt of corporate debtors, some changes will have to be made in the Code.

READ ALSO:  Congress divided over J&K, Azad takes on dissenters
READ ALSO:  SEBI may issue norms for minimum holding in liquid assets for MFs

“By not providing operational creditors any amount from the proceeds, it is nothing but creation of another set of defaults which will now be done by operational creditors as their source of revenue is curtailed due to CIRP/liquidation process initiated against those from whom they have to recover. We all understand that commercial activities are a vicious circle wherein one is dependent on another and fall of one will result in fall of another,” she said.

Operational creditors are also not part of the Committee of Creditors mostly, which is formed with the financial creditors. They are granted representation in the CoC only when the debtor does not have any financial creditor.

The right to attend the meetings of the CoC is also limited to operational creditors with an aggregate debt of at least 10 per cent of the total debt of the corporate debtor. So, in this manner, they do not even have much say in the decision-making process and time and again the concerns of their interests have been raised, which experts say, need to be addressed at the earliest.

Source: IANS

India Updates
India Updates is an independent news & Information website. Follow us for regular updates on News and Information.

Follow Us On

Related News


Please enter your comment!
Please enter your name here

Trending Topics In India

Covid 19 India Updates

Trending News In India

Trending Showbiz

Trending Sports

Latest Trending News In India

Covid vaccination drive: Over 1.91L beneficiaries innoculated on Day 1

New Delhi, Jan 16 (IANS) The Centre on Saturday said that over 1.91 lakh beneficiaries were inoculated on the first day of the vaccination...

Health workers of private facilities laud vaccination drive

New Delhi, Jan 16 (IANS): As India on Saturday launched a massive vaccination drive in the fight against Covid-19, beginning with healthcare workers, the staff...

China slams US media silence over Pfizer vax deaths in Norway

New Delhi, Jan 16 (IANS) China has slammed the US media for its silence over the deaths of 23 Norwegian elderly patients who were...

‘Made in India’ vaccines proof of ‘Aatmanirbhar Bharat’: Shah

New Delhi, Jan 16 (IANS) Union Home Minister Amit Shah said on Saturday that the 'Made in India' vaccines are proof of the determination...