Answer By law4u team
An Operational Creditor under the Insolvency and Bankruptcy Code (IBC), 2016, refers to a person or entity to whom a corporate debtor owes an operational debt. This can include amounts due for goods or services provided, or other operational activities such as the supply of raw materials or utility services. Operational creditors play an essential role in the Corporate Insolvency Resolution Process (CIRP), where they seek to recover dues from distressed companies.
Who is Considered an Operational Creditor?
Definition of Operational Debt
An operational debt refers to any debt or claim arising from the supply of goods, services, or employment. In simple terms, if the debtor owes money for operational activities (like services rendered or goods supplied), the creditor falls under the category of an operational creditor. Operational debts are distinct from financial debts.
Examples of Operational Debt:
- Unpaid bills for goods supplied.
- Outstanding payments for services rendered (e.g., consultancy fees, utility services like electricity or telecom).
- Wages or salaries owed to employees.
- Rent due for leasing space or property.
- Payments to contractors or vendors who provided materials or services.
Who Qualifies as an Operational Creditor?
- Suppliers of Goods or Services: Any entity that supplies goods, materials, or services to the corporate debtor and has an outstanding payment is considered an operational creditor. For example, a supplier of raw materials, a service provider, or even an employee owed wages.
- Employees and Workmen: Employees or workmen who have unpaid wages, bonuses, or other employment benefits are treated as operational creditors.
- Government or Statutory Authorities: Any unpaid dues to government bodies (e.g., taxes, penalties, utility services) also qualify as operational debts, making such authorities operational creditors.
Rights and Duties of Operational Creditors in CIRP
Initiating Insolvency Proceedings
Filing for CIRP:
Operational creditors can initiate Corporate Insolvency Resolution Process (CIRP) under the IBC if the debtor fails to pay an outstanding debt of ₹1 crore or more. The creditor must prove that the debt is due and payable, and the debtor has defaulted on payment.
Application to NCLT:
The operational creditor files an application with the National Company Law Tribunal (NCLT) to initiate the insolvency process. If the application is accepted, the CIRP begins, and a moratorium period is imposed, protecting the corporate debtor's assets from creditors during the process.
Role in Committee of Creditors (CoC)
Limited Voting Rights:
During the CIRP, operational creditors are included in the Committee of Creditors (CoC), which is responsible for deciding on the Resolution Plan. However, their voting power is limited as compared to financial creditors, who have a higher priority in decision-making (75% voting by value of creditors).
Request for Fair Treatment:
While operational creditors have limited voting rights, they still have the right to be represented and voice concerns regarding the resolution plan.
Information and Transparency
Right to Information:
Operational creditors are entitled to receive information about the progress of the insolvency process. The Insolvency Professional (IP) managing the debtor's affairs must share details related to the resolution process.
Resolution Plan Scrutiny:
Operational creditors are also allowed to assess the Resolution Plan and ensure that their dues are addressed in accordance with the plan. They can contest the plan if it is not in their best interest.
Inclusion in Resolution or Liquidation
Resolution Plan:
If the CoC approves a resolution plan, operational creditors have the right to be paid according to the plan’s provisions. The plan may involve restructuring the operational debt, offering a part-payment, or other recovery measures.
Priority in Liquidation:
In the event the corporate debtor is liquidated (if no resolution plan is approved), operational creditors are paid from the proceeds of asset sales. However, they are placed after secured financial creditors in the order of priority for repayment.
Right to Appeal
If operational creditors disagree with any decision made by the CoC or NCLT during the CIRP, they have the right to appeal the decision to the National Company Law Appellate Tribunal (NCLAT).
Example: Role of Operational Creditors in CIRP
Example: ABC Ltd. (A Manufacturing Company)
ABC Ltd. is a manufacturing company that owes ₹2 crore to various suppliers for raw materials and services provided in the past 6 months. Some of these suppliers have not been paid, and the debt has become overdue.
Operational Creditors’ Claim:
Several suppliers approach NCLT to initiate the Corporate Insolvency Resolution Process (CIRP) under the IBC for the unpaid debts. They file an application at NCLT, asserting that ABC Ltd. has defaulted on payments exceeding ₹1 crore.
NCLT Admission:
NCLT admits the petition and appoints an Insolvency Professional (IP) to manage the process. A moratorium is imposed, halting any further recovery actions by other creditors, including the operational creditors.
Formation of Committee of Creditors (CoC):
A Committee of Creditors (CoC) is formed, with both financial creditors (banks) and operational creditors (suppliers) represented in the group. However, financial creditors hold more voting power, and decisions on the resolution plan are made by majority vote.
Resolution Plan:
After evaluating several resolution plans, the CoC approves a plan that offers partial repayment to operational creditors, based on available assets. Operational creditors have the right to assess the plan and voice their concerns.
Resolution or Liquidation:
If the resolution plan is accepted, ABC Ltd. is restructured, and its debts (including those of the operational creditors) are addressed. If the resolution fails, the company may go into liquidation, and the assets will be sold to repay creditors according to their priority.
Conclusion:
An operational creditor is an individual or entity to whom a corporate debtor owes money arising from the provision of goods or services, such as suppliers, service providers, employees, or contractors. In the Corporate Insolvency Resolution Process (CIRP), operational creditors have the right to initiate proceedings, be part of the Committee of Creditors (CoC), and have a say in the resolution plan, although their voting power is limited compared to financial creditors. Their priority in debt recovery depends on the outcome of the resolution or liquidation process.
