Financial Creditor is a very frequent term in the corporate and insolvency news. The interpretation of this term makes it a lot easier to track the cases involving debt, bankruptcy, and NCLT.
What is a Financial Creditor?
A Financial Creditor refers to an individual or an institution that advances money to a company expecting the money to be returned with interest. Banks, financial institutions, bondholders, or investors who loan or credit facilities are usually the financial creditors.
A financial creditor according to the Insolvency and Bankruptcy Code (IBC) is a party who owes a financial debt to the company.
What is the importance of a Financial Creditor?
The major role in insolvency concerns is the financial creditors. When a loan is defaulted, the statutory option of the financial creditor is to go to National Company Law Tribunal (NCLT) and institute insolvency protection measures against the defaulting enterprise.
They also enjoy considerable voting power in the Committee of Creditors (CoC) that determines the fate of the company when it goes into the insolvency resolution.
Simple Example
Assume that a bank is lending ₹10 crore to a company to expand their business. In case the company does not repay the amount of loan or the interest due in time, the bank becomes a Financial Creditor and it can submit an application before the NCLT to recover the amount or to conduct insolvency proceedings.
Why This Term Matters in News
Financial Creditor assists in recognizing who has loaned money and who is entitled to receive repatriation of the loan whenever you read about loans, defaults, insolvency cases, and NCLT orders.
This renders it a very important concept to be aware of in the news related to corporate debt.
Frequently Asked Questions (FAQ)
Q1. When does the Bank act as Financial Creditor?
The Bank is considered a Financial Creditor when it has made a Loan to an Enterprise.
Q2. Can I be a Financial Creditor as an Individual?
You may be classified as a Financial Creditor as an Individual if you have made a Loan with Interest pursuant to an Agreement with the Individual.
Q3. How are Financial Creditors and Operational Creditors Distinguished?
Financial Creditors Lend Money while Operational Creditors provide Goods and/or Services.
Q4. Can Financial Creditors Go Directly to NCLT?
Yes. If there has been a Default by the Enterprise, a Financial Creditor can submit an Insolvency Application to NCLT.
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