The concept of the class of creditors took shape when thousands of home – buyers fought together up to the highest available courts (judicial and political) in India.
The class of creditors does not means but includes home-buyers or real estate buyers. Class of creditors is a group of 10 or more financial creditors other than banks and financial institutions or trustees in financial securities or deposits. In practice, we often meet home-buyers or real-estate-buyers as the class of creditors.
In case of CIRP – corporate insolvency resolution process, appointed interim resolution professional immediately after appointment by the Adjudicating Authority (National Company Law Tribunal), ascertain the existence of a class of creditors if any. If it seems that there is a class of creditors, the interim resolution professional identifies three insolvency professionals willing to act as an authorised representative of creditors in the class.
Under the law, the authorised representative can receive up to Rs 25,000/- per meeting of the committee of creditors. Representing a class in a daylong meeting at such remuneration may seem a lucrative job, but a good authorised representative do much work for the class of creditors without remuneration – like queries received from any member of the class he is representing. These queries generate from a lack of financial knowledge, lack of understanding of the insolvency resolution process, market rumours on social media and speculative news published in responsible media.
Once the interim resolution professional identifies three insolvency professionals as a candidate for the job of an authorised representative, he publishes by way of advertisement a public announcement inviting claims from creditors.
When the interims resolution professional received sufficient claims from creditors in the class, he will file an application for the appointment of the authorised representative. This application shall be filed within two days of verification of claim received within 14 days from the CIRP commencement date.
Please note, there is another provision that allows creditors to file claims till 90 days from the insolvency resolution commencement date, but claims filed after 14 days shall not be considered for the purpose of appointment of the authorised representative.
Practically, it may not be possible to have an appointed authorised representative in the first meeting of the committee of creditors. Any delay in the appointment of the authorised representative for any class of creditors shall not affect the validity of any decision taken by the committee.
Once the authorised representative is appointed, the resolution professional shall provide a list of creditors in the class to the respective authorised representative appointed by the Adjudicating Authority.
The authorised representative shall use an electronic means of communication between the authorised representatives and the creditors in the class. In practice, the email address of the authorised representative may serve the purpose.
The authorised representative under law shall attend the meetings of the committee of creditors and vote on behalf of each financial creditor to the extent of his voting share. For the purpose of voting, the authorised representative shall rely on pre-instruction voting.
When the authorised representative receives a notice and agenda for the meeting from the resolution professional, he shall circulate the agenda to creditors in a class. He may seek their preliminary views on any item in the agenda to enable him to participate in the committee meeting effectively. Any creditor in the class may submit his preliminary views to the authorised representative within twenty-four hours. These preliminary views are not their voting instructions.
The authorised representative for a class of creditors shall cast his vote on behalf of all the financial creditors he represents in accordance with the decision taken by a vote of more than fifty per cent of the voting share of the financial creditors he represents, who have cast their vote. In a simple language, each class of creditors shall vote as its majority. This is a general majority rule for voting on behalf of a class of creditors. There is an exception to his majority rule.
For a vote to be cast in respect of an application under section 12A, the authorised representative shall cast his vote individually as per each instruction.
Receipt of appointment order by interim resolution professional – Day zero;
Identifying three potential candidates for the job of an authorised representative – Day 1;
Draft public announcement and got it translated in other languages – Day 2;
Publication of the public announcement – Day 3;
First cut-off day to receive claims – Day 14;
Verification of claims received before first cut-off date – Day 21;
Application for appointment of an authorised representative – Day 22