The IBBI, in a discussion paper, has proposed to provide an option for withdrawal / closure of a voluntary liquidation process after its initiation, with the approval of the Adjudicating Authority (AA), under the Voluntary Liquidation Regulations, 2017. The said Regulations are silent on this point. However, as on 31 October 2020, there have been at least ten cases where the process has been withdrawn or suspended. Therefore, it is proposed to provide a streamlined option on an ex-ante basis and to enable the Board to provide checks on any possibility of abuse of the process when the Company is closing on its own without informing the AA. This will help save a potentially viable company from dissolution and adverse consequences on other stakeholders, such as workmen, employees, raw material suppliers etc.

To this end, the Board has proposed a new regulation 4 A (Withdrawal from Liquidation Process) in Chapter II of the  Voluntary Liquidation Regulations, which will provide that:

• The Corporate Person (CP) be allowed to seek approval of the AA for withdrawal from the process.

• Such withdrawal is 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 CP.

• Where there has been no sale of assets, the withdrawal shall have approval of creditors representing two-thirds in value of the outstanding debt. Where sale has commenced, the withdrawal shall have approval of all unpaid creditors, unless the dues of all unpaid creditors are settled before passing of the resolution.

• The liquidator shall approach the AA with an application for withdrawal, along with an affirmation by the liquidator that (a) due process for withdrawal of voluntary liquidation has been followed, and (b) the withdrawal is not initiated to defraud any person and the CP is solvent.

• After the application to withdraw the voluntary liquidation is approved by the AA, the liquidator shall forward a copy of the order of AA to the Board and the CP.

Public comments have been invited to the following points, by 15 December 2020:

• Should there be a provision for withdrawal from the voluntary liquidation process, if such withdrawal is approved by special resolution of members, partners or contributories, as the case may be, in Voluntary Liquidation Regulations? If so, whether such withdrawal is to be approved by AA.

• Should the withdrawal from voluntary liquidation process be permitted both prior to and post initiation of process of sale of assets of CP by the liquidator. If so, what conditions should be imposed to ensure proper checks and balances on such withdrawal?.

To refer to the Discussion paper dated 24 November 2020, click here.