Introduction

In the realm of corporate insolvency, the Committee of Creditors (CoC) stands as a powerful decision-making body. Enacted under India’s Insolvency and Bankruptcy Code (IBC) 2016, the CoC determines whether a distressed company gets a second chance through resolution or meets its end through liquidation. Its decisions impact not only the financial creditors involved but also employees, suppliers, and the broader economic landscape. Given the high stakes, the CoC’s decision-making process is often a battleground where financial interests, legal interpretations, and business viability clash.

A Complex Decision-Making Landscape

The CoC, primarily composed of financial creditors such as banks and financial institutions, has the authority to approve or reject resolution plans submitted by bidders. These plans outline how a distressed company can be revived or restructured. However, the voting mechanism requiring a 66% majority creates an inherent challenge. The interests of financial creditors often take precedence, sidelining operational creditors such as suppliers, vendors, and employees who lack voting rights. This imbalance can lead to disputes and prolonged litigations, as seen in high-profile cases like Essar Steel, where operational creditors contested the resolution plan.

Additionally, the CoC is tasked with assessing the viability of resolution plans, ensuring they are financially sound and sustainable. The challenge lies in balancing the need for maximum recovery with the long-term stability of the business. Poorly evaluated decisions can result in failed resolutions leading to eventual liquidation and loss of economic value.

Strengthening the CoC’s Framework

1. Enhanced Representation for Operational Creditors – While financial creditors hold voting power, operational creditors should have a structured platform to present their interests. A more inclusive decision-making framework would ensure that resolutions account for all stakeholders.
2. Transparency in Decision-Making – The CoC’s rationale behind rejecting or approving a plan should be well-documented and made available for judicial review. This would prevent arbitrary decisions and foster investor confidence.
3. Judicial Oversight and Regulatory Reforms – Courts have played a crucial role in ensuring fair treatment of all creditors. Strengthening judicial guidelines and clarifying ambiguous provisions in the IBC can reduce delays and unnecessary litigation.
4. Viability-Based Decision Criteria – Instead of prioritizing short-term financial recovery, CoC members should assess the long-term viability of the resolution plan, including the company's potential to generate revenue, retain employees, and contribute to the industry.

Challenges and Critical Analysis

Despite these solutions, significant challenges persist. The CoC’s decisions are often influenced by financial institutions' self-interest, leading to conflicts with other stakeholders. Furthermore, resolution plans are sometimes delayed due to prolonged negotiations, reducing the value of the distressed company’s assets.

Judicial interventions, while necessary, also create complexities. Courts have stepped in to ensure fairness, but excessive litigation can slow down the resolution process, contradicting the IBC’s goal of timely insolvency resolution. Additionally, certain cases reveal a lack of expertise among CoC members in evaluating industry-specific business plans, leading to decisions that may not be in the company’s best long-term interests.

Conclusion

The CoC wields immense power in shaping the future of distressed businesses, making its role one of responsibility and scrutiny. While the IBC has streamlined the insolvency process in India, the system needs refinements to address the inherent imbalances between financial and operational creditors.

In my view, a more inclusive and transparent approach to decision-making, combined with regulatory oversight, can enhance the CoC’s effectiveness. Striking the right balance between financial recovery and long-term business sustainability is key to ensuring that corporate insolvencies serve not just creditors but the broader economy. Strengthening the expertise of CoC members and implementing clear guidelines can help resolve insolvencies in a way that benefits all stakeholders, not just those with voting power. The future of corporate insolvency in India depends on a well-calibrated system where business viability, fairness, and economic interests align.