Financial and operational creditors
Also called: Financial creditor, Operational creditor · Topic: Banking Regulation, NPAs and Financial Stability · NCERT: Beyond NCERT
Meaning
The IBC divides creditors into two types.
- Financial creditors lent money to the firm. Examples are banks and bondholders.
- Operational creditors are owed for goods or services supplied, for wages, or for government dues.
The difference matters because only financial creditors sit on the Committee of Creditors (CoC). The CoC votes on resolution plans. The law assumes lenders are best placed to judge whether a firm can be saved. Operational creditors can start insolvency against a defaulting firm, but they have no vote on its future.
Example
A steel company owes Rs 500 crore to SBI, Rs 20 crore to a coal supplier and unpaid salaries to its staff. SBI is a financial creditor. The coal supplier and the workers are operational creditors.
Don't confuse with
- Secured and unsecured creditors: this split is about whether the creditor holds collateral. It is a separate question from financial versus operational. A financial creditor can be either secured or unsecured, and this affects its place in the liquidation waterfall.
Related concepts
- Insolvency
- Bankruptcy
- Corporate Insolvency Resolution Process
- Committee of Creditors
- Resolution professional
- Liquidation waterfall
- Haircut
- Pre-packaged insolvency
- Cross-border insolvency