The Supreme Court has described the Committee of Creditors (CoC) as the protagonist of insolvency resolution under the Insolvency and Bankruptcy Code (IBC), 2016. According to reports from Business Standard, the CoC decides whether a distressed corporate debtor should be rescued through a resolution plan or sent into liquidation, with the objective to resolve the stress while maximising the value of the assets of the CD. The decision is commercial and ordinarily beyond judicial substitution, not amenable to arithmetic calculations, and rests on voting informed by commercial wisdom rather than the highest evaluation score or upfront payment.
As reported by Business Standard, recovery focuses on distributing present value while resolution seeks to preserve viable enterprise and create future value. The article explains that when creditors take upfront recovery and exit at maximum distress, they compromise future value creation and may leave gains from enterprise revival to acquirers. Successful resolution can keep productive assets in use, preserve relationships with employees, suppliers and customers, attract fresh capital, change management or strategy, and address causes of distress. A resolution applicant is willing to invest because it sees value not merely in existing assets but in what can be created through revival.
According to the analysis in Business Standard, creditors hold claims linked to enterprise and asset value, and maximising CD value should maximise creditor value. The article notes that creditor decisions differ based on time horizon and resolution plan structure - those retaining economic connection can participate in both preserved value and additional value created through revival. Evidence shows companies do revive and prosper post-resolution, with improved operations, better capacity utilisation, returning customers, and increased enterprise value. Creditors who take upfront settlements completely exit and miss subsequent value increases, potentially leaving revival gains to acquirers.
As reported by Business Standard, banks tend to prefer cash settlements due to accounting and justification requirements, while equity requires valuation, monitoring, and eventual monetisation. The article suggests that CoCs could invite bids in both all-cash and cash-plus-upside formats for proper risk-adjusted comparison. Regulators could provide clear frameworks for valuing and accounting for equity or contingent consideration under approved resolution plans. The challenge lies in making value-maximising decisions defensible, distinguishing between accepting uncertain superior value after risk adjustment and accepting cash simply for easier justification.
According to the analysis in Business Standard, resolution plans should be judged not only by immediate creditor receipts but by what they enable thereafter. The article emphasizes evaluating whether businesses survive, productive assets remain productive, fresh investment comes in, financial and operational weaknesses are repaired, and the enterprise becomes capable of creating value beyond insolvency entry point. The CoC has responsibility to exercise commercial wisdom consistently with statutory objectives, ensuring that maximising CD value maximises creditor value, while creditors choosing to exit at maximum distress may maximise only their haircut rather than enterprise or creditor value.
