Resolution Bazaar

Games Committee Members Play

The Committee of Creditors (CoC) plays a pivotal role in the insolvency resolution process in India, making decisions regarding the approval of resolution plans and the overall management of the corporate debtor during the Corporate Insolvency Resolution Process (CIRP). However, members of the CoC can sometimes engage in manipulative tactics or “games” that can compromise the integrity of the process. Here are some tactics that the CoC might employ: Influencing Voting Dynamics

 Tactic: CoC members may engage in lobbying or backdoor negotiations to sway votes in favor of a particular resolution plan or stakeholder, especially if they have vested interests or relationships with certain resolution applicants.
 Beneficiary: This typically benefits specific resolution applicants or creditors who are in a position to offer favorable terms to influential CoC members.
 Countermeasure: Transparency in the voting process and clear guidelines from the Insolvency and Bankruptcy Code (IBC) regarding voting thresholds can help prevent undue influence.

Creating Conflict of Interest Scenarios

 Tactic: Some members may have interests that conflict with their role in the CoC, leading them to push for decisions that benefit their own financial positions rather than the collective interest of all creditors.
 Beneficiary: Individual creditors or stakeholders with close ties to CoC members may benefit, potentially at the expense of the other creditors.
 Countermeasure: Disclosure of interests and strict adherence to conflict-of-interest policies are essential to maintaining fairness in decision-making.

Delaying the Resolution Process

 Tactic: CoC members might stall decision-making or the approval of resolution plans to exert pressure on the debtor or resolution applicants, often to negotiate better terms for themselves.
 Beneficiary: This tactic can benefit members who may receive higher payouts or more favorable terms as a result of prolonged negotiations.
 Countermeasure: Timelines set by the IBC must be strictly adhered to, with oversight from the National Company Law Tribunal (NCLT) to prevent unnecessary delays.

Manipulating Information Disclosure

 Tactic: Members may selectively disclose or withhold crucial information about the corporate debtor's financial health, influencing other members’ votes and decisions on resolution plans.
 Beneficiary: This can benefit particular creditors or resolution applicants who are privy to information that others do not have, skewing the decision-making process.
 Countermeasure: Regular and standardized reporting requirements help ensure that all creditors have access to the same information.

Forming Alliances

 Tactic: Certain members of the CoC might form alliances or coalitions to push a specific agenda or resolution plan, effectively marginalizing dissenting voices and minimizing competition among resolution applicants.
 Beneficiary: This tactic usually benefits the resolution applicant favored by the coalition, allowing them to secure the deal with less resistance.
 Countermeasure: Voting rules and the requirement for diverse representation in the CoC can help prevent domination by a small group of creditors.

Applying Pressure on Resolution Applicants

 Tactic: The CoC can collectively exert pressure on resolution applicants to alter their proposals or terms, using the threat of rejection to negotiate for better deals or to favor certain creditors.
 Beneficiary: This pressure tactic typically benefits members of the CoC who might have stronger negotiating positions or specific interests they wish to protect.
 Countermeasure: Regulatory bodies can monitor negotiations to ensure they are fair and within the bounds of the IBC.

Strategic Rejection of Plans

 Tactic: CoC members may deliberately reject resolution plans based on arbitrary or overly stringent criteria to leverage better offers or terms from the resolution applicants, effectively holding the process hostage.
 Beneficiary: This tactic benefits certain CoC members who have interests in securing higher returns or who may have relationships with alternative resolution applicants.
 Countermeasure: The IBC mandates that rejection of plans must be based on clear, objective criteria to prevent arbitrary decision-making.

Negotiating Side Deals

 Tactic: Members of the CoC may negotiate side deals with resolution applicants that provide them with additional benefits outside of the formal resolution plan, undermining the process.
 Beneficiary: Individual creditors or stakeholders who enter these side deals benefit at the expense of the overall collective interest of the CoC.
 Countermeasure: Transparency and strict oversight of all negotiations are necessary to detect and prevent such underhanded dealings.

Undermining Competitors

 Tactic: CoC members may engage in tactics to undermine competing creditors or resolution applicants by spreading misinformation, emphasizing weaknesses, or creating unfounded fears about the competition’s proposals.
 Beneficiary: This generally benefits a favored resolution applicant or creditor looking to eliminate competition for the corporate debtor.
 Countermeasure: An independent evaluation of proposals and a transparent decision-making process help mitigate misinformation tactics.

Altering the Composition of the CoC

 Tactic: Certain members might attempt to alter the composition of the CoC by pushing for the inclusion or exclusion of specific creditors, thereby influencing the dynamics and decisions of the committee.
 Beneficiary: This tactic can favor stakeholders whose interests align with those of the members seeking to control the CoC.
 Countermeasure: The IBC has clear guidelines on the composition of the CoC, and any alterations should require regulatory approval to prevent manipulation.

Encouraging Substantial Restructuring Offers

 Tactic: CoC members may advocate for plans that call for significant restructuring of the corporate debtor, such as debt-to-equity swaps, in exchange for favorable terms or control over future management.
 Beneficiary: This can benefit members who seek to influence or control the management of the company post-resolution.
 Countermeasure: Comprehensive assessments and stakeholder consultations are essential to ensure that restructuring offers are in the best interests of all creditors.

Rejecting Qualified Resolution Applicants

 Tactic: The CoC might exclude or reject resolution applicants who are well-qualified but not favored by certain members, opting instead for less qualified applicants who offer better terms to the CoC members.
 Beneficiary: This typically benefits the favored resolution applicant or group of creditors at the expense of the corporate debtor’s best interests.
 Countermeasure: Transparent evaluation criteria for applicants and a mandatory assessment of qualifications can help prevent this tactic.

Creating Confusion Over Claim Prioritization

 Tactic: CoC members may complicate or confuse the prioritization of claims, leading to disputes among creditors and delaying the resolution process.
 Beneficiary: This benefits members with stronger positions who can exert influence over the resolution process.
 Countermeasure: Clear guidelines and regulations on claim prioritization help maintain order and prevent disputes.

Safeguards and Oversight Mechanisms The regulatory framework of the IBC includes safeguards designed to mitigate the potential for CoC members to engage in these manipulative practices:

 Transparency Requirements: All CoC proceedings must be conducted transparently, with adequate disclosures required of all members and stakeholders.
 Regulatory Oversight: The IBBI and NCLT monitor CoC activities to ensure compliance with the law and to identify any potentially unethical behaviors.
 Strict Voting Rules: The IBC sets strict voting thresholds for decision-making in the CoC, reducing the likelihood that a small group can dominate the process.
 Independent Advisors: The appointment of independent financial advisors can provide unbiased assessments and recommendations, reducing the risk of manipulative behavior by CoC members.
 Whistleblower Mechanisms: Stakeholders can report unethical practices or behavior within the CoC, promoting accountability and integrity in the process.

These mechanisms are crucial for maintaining the integrity of the insolvency resolution process, ensuring that all stakeholders are treated fairly and that the process is not undermined by self-serving tactics.

In situations where the Committee of Creditors (CoC) may engage in manipulative tactics, AI agents can play a pivotal role in ensuring transparency, fairness, and efficiency in the insolvency resolution process. Below is a detailed description of the kinds of AI agents that can help mitigate the risks associated with CoC tactics:

1. Conflict of Interest Detection Agents Purpose: Identify and flag potential conflicts of interest among CoC members. Capabilities: Analyze publicly available data, financial disclosures, and social connections of CoC members to detect relationships with resolution applicants or other stakeholders. Use knowledge graphs to map and identify indirect relationships or shared financial interests. Highlight inconsistencies between disclosed interests and detected interests, enabling auditors to take corrective action. Outcome: Prevents biased decision-making by ensuring all potential conflicts of interest are disclosed and addressed transparently.
2. Transparency and Voting Audit Agents Purpose: Ensure fair and transparent voting by auditing the voting process and outcomes. Capabilities: Automate the recording and validation of voting patterns using blockchain technology for tamper-proof records. Analyze voting behavior for patterns indicative of undue influence (e.g., sudden swings in support for a specific plan). Alert regulatory bodies when anomalies are detected. Outcome: Increases accountability in the CoC's decision-making process and reduces the risk of manipulation.
3. Information Integrity Agents Purpose: Ensure that all CoC members have equal access to accurate, comprehensive information about the corporate debtor. Capabilities: Scrape and organize financial data, business performance reports, and legal filings to create a standardized information repository accessible to all members. Use Natural Language Processing (NLP) to identify discrepancies in financial disclosures or selectively disclosed data. Provide real-time alerts if critical information is being withheld or manipulated. Outcome: Eliminates information asymmetry, ensuring informed and fair decision-making.
4. Timelines and Compliance Monitoring Agents Purpose: Enforce adherence to timelines and compliance with Insolvency and Bankruptcy Code (IBC) guidelines. Capabilities: Monitor deadlines and send automated reminders to CoC members and stakeholders regarding critical milestones. Detect and flag unjustified delays in decision-making or plan approvals. Leverage rule-based AI to check if decisions meet IBC guidelines and generate real-time reports for oversight bodies like the NCLT. Outcome: Reduces unnecessary delays and ensures procedural compliance, preventing stalling tactics.
5. Anomaly Detection Agents Purpose: Identify unusual or unethical behaviors within the CoC, such as strategic rejection of resolution plans or formation of alliances. Capabilities: Use machine learning algorithms to analyze historical voting patterns and identify anomalies (e.g., coordinated rejections or biases). Detect sudden shifts in creditor alliances or unusual lobbying efforts by resolution applicants. Flag suspicious activity for investigation by independent auditors or regulatory authorities. Outcome: Prevents collusion and ensures decisions are made in the collective interest of all creditors.
6. Independent Evaluation Agents Purpose: Provide unbiased assessments of resolution plans to ensure decisions are not swayed by lobbying or alliances. Capabilities: Use predictive AI to assess the feasibility and value of proposed resolution plans based on past insolvency cases and industry benchmarks. Simulate outcomes of competing plans to evaluate potential creditor recoveries and operational impacts. Rank resolution plans objectively, providing insights to the CoC for informed decision-making. Outcome: Enhances the fairness and transparency of resolution plan evaluations, reducing opportunities for manipulation.
7. Stakeholder Sentiment Analysis Agents Purpose: Analyze public and creditor sentiment regarding the resolution process and specific plans. Capabilities: Scrape social media, news articles, and stakeholder communications to assess sentiment toward resolution plans. Use sentiment analysis to identify concerns, misinformation, or risks associated with public perception. Provide insights to the CoC for addressing reputational risks or stakeholder grievances. Outcome: Helps CoC maintain credibility and address issues before they escalate, ensuring stakeholder confidence.
8. Negotiation Oversight Agents Purpose: Monitor negotiations between CoC members and resolution applicants to detect unethical practices. Capabilities: Record and analyze negotiation logs using speech-to-text and NLP to identify signs of coercion, favoritism, or side deals. Compare proposed terms with industry standards to detect disproportionately favorable agreements. Flag violations of IBC guidelines or other regulatory standards during negotiations. Outcome: Ensures negotiations are fair and within legal bounds, discouraging side deals or undue pressure.
9. Claim Prioritization Agents Purpose: Simplify and standardize the prioritization of creditor claims to avoid disputes. Capabilities: Automate the categorization and ranking of claims based on IBC regulations and case precedents. Use rule-based systems to generate transparent, auditable claim prioritization reports. Resolve disputes using predefined algorithms that ensure impartiality. Outcome: Prevents confusion and manipulation in claim prioritization, ensuring fair treatment for all creditors.
10. Compliance Monitoring Agents Purpose: Track CoC activities for adherence to regulatory frameworks. Capabilities: Continuously monitor CoC decisions and actions for compliance with IBC provisions. Generate automated reports for regulatory bodies like IBBI or NCLT to ensure oversight. Alert authorities to non-compliant activities, such as improper CoC composition or unauthorized plan rejections. Outcome: Maintains the integrity of the process and ensures regulatory adherence.
11. Alliance Detection Agents Purpose: Detect alliances or coalitions within the CoC that could influence decision-making. Capabilities: Use graph-based analysis to detect voting clusters and identify patterns of coordinated behavior. Flag alliances that repeatedly favor specific resolution applicants or creditors. Suggest countermeasures to ensure diverse representation and equitable decision-making. Outcome: Prevents domination by small groups within the CoC, ensuring balanced and fair resolutions.
12. Predictive Resolution Outcome Agents Purpose: Forecast the potential recovery values and success probabilities of resolution plans. Capabilities: Use historical data and predictive modeling to estimate the financial recovery for creditors under different resolution plans. Simulate the long-term operational impact of various proposals. Provide risk analysis to highlight plans with the highest likelihood of success. Outcome: Enables the CoC to make data-driven decisions, reducing reliance on subjective judgment or influence.

Conclusion AI agents tailored to the insolvency resolution process can act as watchdogs, auditors, and decision-support tools to ensure transparency, fairness, and efficiency in CoC activities. By implementing these agents, insolvency professionals and regulators can mitigate manipulative practices, uphold the integrity of the process, and achieve equitable outcomes for all stakeholders.