Companies going for voluntary liquidation may now have an option to withdraw from the process
After amending the liquidation process under the Insolvency and Bankruptcy Code (IBC), the insolvency regulator – Insolvency and Bankruptcy Board of India (IBBI) – has now proposed changes in the voluntary liquidation process.
A discussion paper floated by the insolvency regulator has proposed to allow a corporate entity to withdraw a voluntary liquidation process after it has been started. The proposal says the corporate entity should be allowed to seek approval of the adjudicating authority for withdrawal of the process. Such withdrawal should to be allowed only if it is backed by a special resolution of the members, partners or contributories, as the case may be, of the corporate entity.
At present the provisions of IBC and Voluntary Liquidation Regulations are silent on the withdrawal or closure of the process after its initiation. Despite that eight voluntary liquidation processes have been withdrawn/suspended/cancelled as on 31st October, 2020. The proposed changes, therefore, are likely to codify the regulations for withdrawal of the voluntary liquidation process.
The discussion paper further proposes that cases where there has been no sale of assets, the withdrawal should have approval of creditors representing two-thirds in value of the outstanding debt. Where sale has commenced, the withdrawal should have approval of all unpaid creditors, unless the dues of all unpaid creditors are settled before passing of the resolution.
Further laying down the basic process for withdrawal of voluntary liquidation process, the discussion paper suggest that the liquidator should approach the adjudicating authority (AA) with an application for withdrawal, along with an affirmation by the liquidator that due process for withdrawal of voluntary liquidation has been followed, the withdrawal is not initiated to defraud any person and that the corporate entity under question is solvent. After the application to withdraw the voluntary liquidation is approved by the AA, the liquidator can then forward a copy of the order to the Board and the company.
The purpose of incorporating a withdrawal clause in the code is apparently to help save a potential viable company from dissolution, by providing an opportunity to company to withdraw from the voluntary liquidation process.
The discussion paper further argues that saving the corporate entity would avoid destruction of value of resources and adverse effect on other stakeholders such as workmen, employees, raw material suppliers.
It also says that by amendments will provide an orderly framework for withdrawal from the process, by way of insertion of new regulation, which also ensures adequate checks and balances so that the process is not misused.
The regulator has sought public comment on the draft proposals. A final decision on the proposals will be taken after the consultation process is over.
