Insolvency regulator IBBI has come up with a discussion paper on Code of Conduct for the Committee of Creditors (CoC), which is the custodian of public trust during resolution process.

The proposed Code of Conduct, which establishes broad principles that can be applied to every situation, is expected to elevate accountability and responsibility of Committee of Creditors to ensure transparency in their functioning.

It is being proposed at a time when there have been several issues and apprehensions regarding the conduct of members of the CoC.

In fact, the Standing Committee on Finance headed by Jayant Sinha had recently recommended that there is an urgent need to have professional code of conduct for the CoC, which will define and circumscribe their decisions, as these have larger implications for the efficacy of the Code.

On several occasions, questions have been raised in various fora about the action of CoC being detrimental to objectives of the Code. The latest discussion paper also highlighted that internationally there are precedents, whereby, the CoC with the corporate debtor are subject to certain rules and regulations for their conduct in the process.

Currently, the conduct and decision making of the CoC is not subject to any regulations, instructions, guidelines. The proposed code of conduct could come in the form of guidelines for the members of the CoC to effectively guide them in their day to day functioning.

Swiss challenge mechanism

Meanwhile, the discussion paper has also sought public comments on whether Swiss challenge mechanism be available in the corporate insolvency regulations. The discussion paper has also sought public comments on the treatment of live bank guarantees and line of credit as claims in a Corporate Insolvency Resolution Process (CIRP).

Experts’ take

Rahul Chadha, Managing Partner, Chadha & Co. said, “Given the experience of the working of CoCs for almost 5 years, the concerns raised around disproportionately large haircuts taken by CoCs, and the Supreme Court’s interpretation that CoCs enjoy autonomy and their commercial wisdom cannot be challenged, placing some accountability on the decision making of CoCs is a welcome move for enabling an effective ecosystem for implementation of the IBC, maximising the value of assets, and balancing the interests of various stakeholders.

However, since the prime regulator of CoCs is the RBI, it would be interesting to see how this attempt to regulate the CoC's conduct under the IBC harmonizes with the RBI's regulations.”

Ashish Chhawchharia, Partner and National Head - Restructuring Advisory at Grant Thornton Bharat said “As seen in countries with mature insolvency regimes, the introduction of code of conduct / guidelines will only help the CoC in their decision-making process. It will also lead to more transparency and fairness in the process”.

Bikash Jhawar, Partner, Saraf & Partners, said that there doesn’t appear to be a need for a code of conduct for CoC. Over 4000 cases and a few observations have been made against the CoC and that too vis-à-vis a law which is rapidly emerging and developing.

Abhishek Saxena, Partner, Phoenix Legal said that a Code of Conduct for CoC is a timely step from the perspective of improving transparency and apprising the stakeholders of the principles that CoC will follow to make its decisions.

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