Sage-Tips

What is a financial creditor under IBC?

According to Section5(7) of the Insolvency and Bankruptcy Code, 2016, financial creditor has been defined as follows, ‘A person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred’.

Why operational creditors are not included in CoC?

Why not Operational Creditors? The reason for the inclusion of financial creditors in the COC meeting is that the debts of the financial creditors are very large in comparison to the debt of the operational creditors. Hence the financial creditors are included as members in the Committee of Creditors.

Who constitutes the committee of creditors under IBC 2016?

(1) The interim resolution professional shall after collation of all claims received against the corporate debtor and determination of the financial position of the corporate debtor, constitute a committee of creditors.

Who are included in committee of creditors?

The resolution professional has the responsibility to issue notice to all the participants and the members of the committee of creditors. Here participants mean the suspended Board Members or Partners of the corporate person, Operational Creditors if their aggregate debt is more than 10\% of the total debt.

What is financial creditor and operational creditor?

Financial creditors are those whose relationship with the entity is a pure financial contract, such as a loan or a debt security. Operational creditors are those whose liability from the entity comes from a transaction on operations.

Are banks financial creditors under IBC?

Even in the case of liquidation and asset distribution, financial creditors are prioritised over operational creditors. Thus, IBC limits the rights of an operational creditor to only attending the meeting of CoC. Therefore, they are rendered unable to vote in the decision-making process.

Does financial creditor includes secured creditor?

While the term ‘financial creditor’ has been defined as “any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to” , the term ‘secured creditor’ has been defined as “a creditor in favour of whom security interest is created” .

Who are creditors under IBC?

Section 2 (10): “creditor” means any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree holder; c.

Does a financial creditor include a secured creditor?

What is operational creditor under IBC?

Insolvency and Bankruptcy Code, 2016 (IBC ) defines Operational creditor as a person to whom an operational debt is owed including the debt that has been legally assigned or transferred.

Who is the Committee of creditors under the IBC?

Here, the IBC prescribes that the Committee of Creditors shall consist solely of financial creditors. The resolution plan can be implemented only if it has been approved by 66\% of the creditors. Only operational creditors having aggregate dues of at least 10\% of the total debt shall be given the notice of the meeting.

Should operational creditors also be included in COC under IBC?

Thus, there must be some criteria under IBC based on which such operational creditors may also be included in CoC or else it should be left to the discretion of National Company Law Tribunal to include them in CoC with voting rights. Originally published by Lex Witness.

Who are the members of the Committee of creditors?

Generally as per IBC, the COC consists of the financial creditors only. In other words all the Creditors who have financed the corporate debtor against the consideration of time value of money are included in the Committee of Creditors.

What is the difference between financial creditors and operational creditors?

Financial creditors are having capacity and willingness to take the risk of restructure and rehabilitation of the debt of the Corporate debtor but whereas the operational creditors are not having such capacity and calibre to restructure the debt of the Corporate debtor.

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