A Committee of Creditors (CoC) is a formal body comprised of a company's financial creditors, formed when that company enters insolvency or bankruptcy proceedings. Think of it as an emergency board of directors, but instead of representing shareholders, it represents the lenders who are owed money. The CoC's primary mission is to steer the ship through the storm of financial distress, with the ultimate goal of maximizing the recovery of their loans. They hold immense power during a corporate restructuring, as they are responsible for evaluating and voting on proposals to either rescue the company or sell it off for parts. This committee is a central player in the high-stakes drama of corporate turnarounds and failures, making crucial decisions that determine the fate of the business, its employees, and its investors.
The CoC is far from a passive observer; it is the decision-making nucleus of the insolvency process. Its members don't run the company day-to-day—that task usually falls to an appointed insolvency professional—but they hold the ultimate authority. Their key responsibilities include:
In essence, the CoC holds the company's life in its hands. Their collective decision determines whether the business gets a second chance or is sent to the corporate graveyard.
Membership in this exclusive club is typically reserved for financial creditors—entities like banks, hedge funds, and bondholders that have lent money to the company. They are distinguished from operational creditors, who are owed money for goods or services supplied (e.g., vendors, suppliers, and sometimes employees).
The rationale for this distinction is that financial creditors are usually in the business of lending and risk assessment. Their debt is often secured by the company's assets, and they have the most to lose in a collapse. While operational creditors are also important, their claims are often smaller, unsecured, and treated differently under insolvency laws. In many jurisdictions, operational creditors don't get a vote in the CoC, though they are kept informed and are entitled to receive a minimum payout from any approved plan.
Within the CoC, democracy is not based on one-member, one-vote. Instead, voting power is proportional to the amount of debt each creditor is owed. A bank that lent $100 million will have a much more powerful voice than a fund that lent $10 million. This “money talks” approach ensures that the creditors with the most significant financial exposure have the greatest influence on the outcome.
For an ordinary investor, the formation of a CoC is a five-alarm fire. However, for a savvy value investing practitioner, it can also be a source of crucial information and, occasionally, rare opportunity.