Financial Debt

IBC, 2016 — Section 5(8)

A debt along with interest disbursed against the consideration for the time value of money. Includes money borrowed against payment of interest, bonds and debentures, hire purchase and finance lease, receivables sold or discounted, amounts raised under any other transaction having commercial effect of a borrowing, and derivative transactions.

In practice, financial debt under Section 5(8) of the IBC is the gateway concept for any creditor wanting to trigger or participate in a corporate insolvency on the financial-creditor side. It captures money disbursed against the consideration for the time value of money, loans carrying interest, bonds and debentures, finance leases and hire purchase, discounted receivables, and any transaction having the commercial effect of a borrowing. The breadth matters because structured arrangements that do not look like a plain loan can still qualify if they carry that borrowing character, and conversely a mere trade advance usually will not. When a creditor files under the IBC, the resolution professional and the Adjudicating Authority test the claim against this definition, so counsel must show both the disbursal and the time-value-of-money element on the documents. Mischaracterising an operational dealing as financial debt invites rejection of the claim and loss of CoC standing. Well-advised creditors map their exposure to the limbs of Section 5(8) before filing.