Guidelines for Committee of Creditors

In their infinite wisdom, the guardians of insolvency have issued “Guidelines” for the Committee of Creditors (CoC) on 06.08.2024. A quick read of the 3-page document reveals that the IBBI expects the CoC to demonstrate: (i) objectivity and integrity, (ii) independence and impartiality, (iii) professional competence and participation, (iv) cooperation, supervision, and timeliness, (v) confidentiality, and (vi) the sharing of information. Essentially, the IBBI has tossed around a bunch of action verbs reminiscent of the jargon MBA graduates throw around during vague consulting interviews.

 

This contrasts with the numerous other guidelines, circulars, notifications, and amendments to regulations that the IBBI periodically issues, often leaving everyone unclear about the current state of the law. The IBBI operates on a principle: the best way to train goalkeepers is by constantly changing the rules of the game. And in this grand game of insolvency, Insolvency Professionals are the goalkeepers.

 

However, in every other publication, the IBBI first mentions the specific section of the Code that empowers it to issue such documents. Then the IBBI mentions why such a publication was necessary, often in an accompanied press release. Then there’s a breakdown of steps to be taken to give effect to the publication. However, when it comes to the CoC, the IBBI merely issues guidelines without referring to a single section or regulation in the legal framework. Why? Because the IBBI was never empowered to assign responsibility (blame) to any of the various stakeholders in the insolvency process – CoC, SCC, NCLT, SBoD, or the auditors. So all the “responsibility” falls on the Insolvency Professional who is the country’s new favourite scapegoat. This often leads to professionals being unfairly scrutinized while the real decision-makers remain insulated.

 

This is reminiscent of IBBI’s circular dt. 10.08.2018 which quotes various judgements from benches of the NCLT which mention that the members of the CoC attending the meetings of the CoC should be empowered to take decisions during the meetings. The NCLT had also directed the IBBI to form appropriate regulations on the matter. In this view, the IBBI had issued this circular directing the IRP / RP to include a note in the agenda for the meeting that the meeting must be attended by persons who are competent and authorized to take decisions on the spot without deferring to internal approval. Here again, the responsibility was thrown on the shoulders of the IRP / RP. Interestingly, this circular was rescinded by circular dt. 23.05.2022 which said that the 10.08.2018 circular was no longer necessary as it had been incorporated in regulation 17 of the CIRP Regulations. But regulation 17 made no such requirement for the CoC. And once again, the insolvency process was left at the mercy of the CoC.

 

To be fair to the IBBI, it is not their fault that they do not exercise any control over the CoC / SCC. The Code simply does not provide the IBBI any power to regulate the actions of the CoC, as it gives to regulate the actions of IPs. But the Code does give the power to the IBBI regarding the constitution of the CoC and SCC. IPs face a regular problem of non-contribution of funds from the CoC / SCC. However, the regulations do not provide the IPs any power to take any penal measures against the CoC / SCC. Instead, the IP is left as a beggar at the heels of the CoC / SCC in hopes of future fee payments and new assignments.

 

The past decade of insolvency has indoctrinated a culture where any lacuna in the insolvency process automatically becomes a fault of the IP. When the CoC does not approve a resolution plan for months in hopes of a higher resolution value through negotiations, it is the RP who has to take repeated extensions, exclusions, and enlargements from the NCLT. When the CoC does not furnish its confidentiality undertaking, the RP has to explain to the Board why the Information Memorandum was issued belatedly to the CoC. In doing so, we have built an expectation of the CoC to be cajoled by the IP at every stage of the insolvency process – right from the choice of the RP by the CoC.

 

The legislature, judiciary, and IBBI have consistently failed to assign real responsibility to the CoC and SCC. This has left IPs as the lone rangers in the vast landscape of insolvency. Being the only class of stakeholders that can be regulated by the IBBI, the IP becomes a natural scapegoat in the insolvency process. Perhaps it's time to empower the CoC with responsibilities—or at least some mild consequences—for their inaction. Otherwise, we may soon find that the only IPs left standing are those who couldn't secure employment elsewhere. And that might not be the vision of the profession that the IBBI is trying to create. Isn't it time we redefined the responsibilities of the CoC before we run out of capable Insolvency Professionals?