Stakeholders Consultation Committee under IBC

The Insolvency and Bankruptcy Code (IBC), 2016, provides a clear and systematic framework for resolving insolvency and liquidation of companies. Once a corporate debtor enters the liquidation phase, the responsibility to manage the process shifts to a liquidator. To ensure that the liquidator’s actions are transparent and reflect the interests of all stakeholders, the law provides for the constitution of a Stakeholders Consultation Committee (SCC).

The SCC plays an important advisory role during the liquidation process. While its advice is not binding on the liquidator, its input ensures a balanced approach and encourages participation from all affected parties, including financial creditors, operational creditors, and even government authorities.

Meaning and Role of Stakeholders Consultation Committee

The Stakeholders Consultation Committee (SCC) is a body formed during the liquidation process of a company under the IBC. It acts as an advisory panel to the liquidator, who is responsible for managing the assets, liabilities, and proceedings of the corporate debtor. The SCC ensures that the liquidation process remains fair, transparent, and in line with the interests of all stakeholders.

The legal basis for the SCC lies in Regulation 31A of the IBBI (Liquidation Process) Regulations, 2016. This provision requires the liquidator to form a committee of stakeholders to guide and advise on important matters such as valuation, sale of assets, and the appointment of professionals.

The SCC, therefore, serves as a mechanism for checks and balances. It helps ensure that the liquidator’s decisions are not arbitrary and that every class of stakeholder is represented in the process.

Constitution of the Stakeholders Consultation Committee

As per Regulation 31A(1), the liquidator must constitute the SCC within sixty days from the commencement of the liquidation process. The committee is formed based on the list of stakeholders prepared under Regulation 31, which contains details of all creditors and their admitted claims.

The SCC includes all categories of creditors, such as:

• Financial creditors
• Operational creditors
• Government authorities having statutory dues
• Workmen and employees, if applicable

This inclusive structure ensures that no class of creditors is left unheard during the liquidation process.

Importantly, the SCC replaces the Committee of Creditors (CoC), which existed during the Corporate Insolvency Resolution Process (CIRP). Until the SCC is formally constituted, the CoC continues to function as the SCC, retaining the same voting share and decision-making weightage.

Composition and Voting Rights

The composition of the SCC depends on the proportion of admitted claims. Each member’s voting power is based on the value of their admitted claim in relation to the total claims of all stakeholders. This system ensures proportional representation and fairness in the decision-making process.

For instance, if a financial creditor holds 40% of the total admitted claims, their voting share in the SCC will also be 40%. Similarly, government departments with statutory dues are also included in the SCC and receive voting rights proportionate to their claims—something that was not provided in the CoC during the CIRP.

All meetings of the SCC are chaired by the liquidator, who also maintains the minutes of the meetings.

Meetings of the Stakeholders Consultation Committee

The liquidator must convene the first meeting of the SCC within seven days from the liquidation commencement date. Subsequent meetings can be held as and when required, either on the initiative of the liquidator or upon a request made by at least 51% of the representatives of the SCC.

During these meetings, the committee members discuss key issues related to the liquidation process. The minutes of every meeting are to be recorded and preserved by the liquidator for at least eight years after the dissolution of the corporate debtor.

Functions and Scope of the SCC

The Stakeholders Consultation Committee plays an advisory role in several crucial areas of the liquidation process. It ensures that important decisions are made in a transparent and consultative manner. The major functions of the SCC include the following:

Appointment and Remuneration of Professionals

The liquidator often appoints valuers, auditors, legal advisors, and other professionals to assist in the liquidation process. The SCC advises on their appointment and determines their remuneration to ensure cost-effectiveness and transparency.

Sale of Assets

The SCC provides guidance on matters related to the sale of assets. This includes:

• Deciding the manner of sale (public auction or private sale)
• Determining pre-bid qualifications
• Fixing the reserve price for assets
• Planning the marketing and auction strategy

The committee’s input helps maximise the value of the liquidation estate while ensuring that the process remains fair and competitive.

Valuation of Assets

The SCC advises the liquidator on the appointment of registered valuers and the methodology of valuation. Accurate valuation is critical to ensure that stakeholders receive their fair share from the liquidation proceeds.

Liquidator’s Fees

The SCC also advises on the fees payable to the liquidator. If the Committee of Creditors (CoC) had not fixed the liquidator’s remuneration during the resolution process, the SCC has the authority to determine it.

Legal Proceedings

The SCC guides the liquidator on whether to pursue proceedings related to preferential, undervalued, extortionate credit, fraudulent or wrongful trading. It also advises on the manner of distributing any proceeds obtained from such actions.

Distribution of Proceeds

The SCC plays a consultative role in advising the liquidator on how the proceeds from asset sales or recoveries should be distributed among creditors as per the waterfall mechanism under Section 53 of the IBC.

All these functions highlight the committee’s significance in maintaining transparency, accountability, and efficiency during liquidation.

Decision-Making Process

The SCC provides its advice through a vote of at least 66% of the representatives present and voting. However, this advice is not binding on the liquidator. The liquidator may choose to follow or disregard the committee’s suggestions but must record reasons in writing if the advice is not followed.

This structure balances efficiency with accountability. It allows the liquidator to act promptly while ensuring that stakeholders have a meaningful say in the process.

Evolving Role of the SCC

Although the SCC was originally designed to function in an advisory capacity, its role has gradually evolved over time. Amendments and regulatory changes by the Insolvency and Bankruptcy Board of India (IBBI) have strengthened its influence.

Recent trends show that the SCC is becoming more participatory in nature, similar to the CoC in the CIRP stage. For example, liquidators are now required to consult the SCC before finalising key matters such as valuation, preparation of the asset memorandum, and even the terms of the Expression of Interest (EOI) for potential buyers.

This shift reflects a growing recognition that liquidation should not be a one-person process. Instead, it should involve collective wisdom from all stakeholders to ensure fairness and maximise the value of the debtor’s assets.

Distinction between SCC and CoC

While both the SCC and the CoC represent the interests of creditors, they operate in different phases of insolvency and have different powers:

This comparison shows how the IBC provides continuity between the resolution and liquidation stages while adapting the level of stakeholder control to suit the situation.

Legal Provisions and Framework

The legal foundation of the SCC is provided under:

• Section 35 of IBC – Powers and duties of the liquidator.
• Regulation 31A of the IBBI (Liquidation Process) Regulations, 2016 – Detailed rules on the constitution, composition, meetings, and advisory functions of the SCC.
• Section 53 of IBC – Distribution of assets and proceeds during liquidation.

These provisions collectively ensure that the liquidation process remains structured and accountable.

Conclusion

The Stakeholders Consultation Committee under the IBC serves as a vital component of the liquidation process. Although its advice is not binding, the committee’s role ensures that liquidation decisions are not unilateral and that all creditors have an opportunity to contribute to key discussions.