Withdrawal from Voluntary Liquidation Process: Draft Regulations | For Public Comments
Section 59 under Chapter V of Part II of Insolvency and Bankruptcy Code, 2016 (Code) read with the IBBI (Voluntary Liquidation Process) Regulations, 2017 (Voluntary Liquidation Regulations) provides that a Corporate Person (CP) may initiate voluntary liquidation proceedings if two conditions are met: (a) the CP has no debt or is in a position to pay all the debts; and b) the CP is not being liquidated to defraud any person. Such a declaration should be made by a majority of directors, partners or individuals constituting governing board, as the case may be, of the CP.
The economic environment is dynamic. There could be instances where the CP initiated the voluntary liquidation process when the financial prospects were on the downside, however, a business opportunity may arise subsequently during the currency of the process. Further, the management of the CP may also consider selling the CP as a going concern in order to fetch higher realization or otherwise, subsequent to initiation of the voluntary liquidation process. In both the aforesaid circumstances, the CP would have to be revived. However, the provisions of the Code and Voluntary Liquidation Regulations are silent on the withdrawal or closure of the process after its initiation. Nevertheless, as on 31st October, 2020, voluntary liquidation processes of eight CPs have been withdrawn / suspended / cancelled.
Proposed Amendment
It is for consideration to amend the Voluntary Liquidation Regulations to provide:
(i) The CP be allowed to seek approval of the AA for withdrawal from the process.
(ii) 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.
Amendment Regulations
A draft of the amendment regulations is given below:
“4A. Withdrawal from Liquidation Process
(1) Where the process of sale of assets of the corporate person has not been initiated, the members, partners or the contributories, as the case may be, of the corporate person may resolve to withdraw from the process by passing a resolution with a special majority.
Provided that where the corporate person owes any debt to any person, creditors representing two-thirds in value of the debt of the corporate person shall approve the resolution passed under the sub-regulation within seven days of such resolution.
(2) For processes, other than sub-regulation (1) above, the members, partners or the contributories, as the case may be, of the corporate person may resolve to withdraw from the process by passing a resolution with a special majority after the said resolution is either approved by all unpaid creditors or dues of all unpaid creditors have been settled.
(3) The liquidator shall submit an application to the Adjudicating Authority for withdrawal from the process along with a statement that –
(a) due process for withdrawal of voluntary liquidation process has been followed;
(b) the withdrawal process is not initiated to defraud any person and the corporate person is solvent.
(4) After the application to withdraw from the process is approved by the Adjudicating Authority, the liquidator shall forward the copy of the order of Adjudicating Authority to the corporate person and the Board.”
Public Comments
Comments may be submitted electronically by 15th December, 2020. For providing comments, please follow the process as under:
(i) Visit IBBI website, www.ibbi.gov.in;
(ii) Select ‘Public Comments’; and then select ‘Discussion Paper – Voluntary Liquidation Nov 2020′;
(iii) Provide your Name, and Email ID;
(iv) Select the stakeholder category, namely, –
a) Corporate Debtor;
b) Personal Guarantor to a Corporate Debtor;
c) Proprietorship firms;
d) Partnership firms;
e) Creditor to a Corporate Debtor;
f) Insolvency Professional;
g) Insolvency Professional Agency;
h) Insolvency Professional Entity;
i) Academics;
j) Investor; or
k) Others.
(v) Select the kind of comments you wish to make, namely,
a) General Comments; or
b) Specific Comments.
(vi) If you have selected ‘General Comments’, please select one of the following options:
a) Inconsistency, if any, between the provisions within the regulations (intra regulations);
b)Inconsistency, if any, between the provisions in different regulations (inter regulations);
c) Inconsistency, if any, between the provisions in the regulations with those in the rules;
d) Inconsistency, if any, between the provisions in the regulations with those in the Code; e) Inconsistency, if any, between the provisions in the regulations with those in any other law;
f) Any difficulty in implementation of any of the provisions in the regulations; and
g) Any provision that should have been provided in the regulations, but has not been provided; or
h) Any provision that has been provided in the regulations but should not have been provided. And then write comments under the selected option.
(vii) If you have selected ‘Specific Comments’, please select para/regulation number and then sub-para/sub-regulation number and write comments under the selected para/sub-para or regulation/sub-regulation number.
(viii) You can make more comments or make comments on more than one para/sub-para or regulation / sub-regulation number, by clicking on More Comments and repeating the process outlined above from point 25 (v) onwards.
(ix) Click ‘Submit’, if you have no more comments to make.
