Former directors must be given agenda before creditors meeting

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Board meeting procedures clarified

The Supreme Court, while dealing with an issue relating to the Insolvency and Bankruptcy Code, 2016 (IBC), held that former members of the board of directors, being vitally interested in resolution plans that may be discussed at meetings of the committee of creditors (CoC), must be given a copy of the plans as part of the documents that have to be furnished along with the notice of the CoC meetings.

In the Vijay Kumar Jain v Standard Chartered Bank case, the Supreme Court was hearing an appeal arising out of a National Company Law Appellate Tribunal judgment rejecting the appellant’s request for directions to the resolution professional to provide all relevant documents including the insolvency resolution plans in question to members of the suspended board of directors of the corporate debtor in each case so that they may meaningfully participate in meetings held by the CoC.

While noting that “documents” is a broad expression that would certainly include resolution plans, the court held that every participant is entitled to a notice of every meeting of the committee of creditors. The notice of meeting must contain an agenda of the meeting along with the copies of all documents relevant for matters to be discussed, and the issues to be voted upon at the meeting under regulation 21(3)(iii) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. Obviously, resolution plans are “matters to be discussed” at such meetings, and former directors are participants who will discuss these issues.

The court also noticed that under regulation 38(1)(a), a resolution plan shall include a statement as to how it has dealt with the interest of all stakeholders, and under sub-clause 3(a), a resolution plan shall demonstrate that it addresses the cause of default. This regulation also, therefore, recognizes the vital interest of the erstwhile board of directors in a resolution plan, together with the cause of default. It is here that the former directors can make a representation to the committee of creditors that the cause of default is not due to the former management, but due to other factors that may be beyond their control, which have led to non-payment of the debt.

The court also rejected the contention that a mere director would have the right to get documents but a director, who is a financial creditor shall not have any right of representation, participation or voting in a meeting of the CoC. Mere directors are not the subject matter of the proviso to section 21(2), only directors who are related parties of the corporate debtor. It is only such persons that have no right of representation, participation or voting in a meeting of the committee of creditors.

The court, therefore, directed that the appellants be given copies of all resolution plans submitted to the CoC within a period of two weeks.

The dispute digest is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@bhasinco.in or lbhasin@gmail.com. Readers should not act on the basis of this information without seeking professional legal advice.