When the Insolvency and Bankruptcy Code ("Code") was enacted and came into force in the year 2016, the Code did not envisage withdrawal of an insolvency application once such an application for initiating the corporate insolvency resolution process ("CIRP") of the corporate debtor is admitted. At that time, the application for initiating CIRP could be withdrawn only before its admission under Rule 8 of the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016. However, new Section 12A, allowing withdrawal of the admitted applications having initiated CIRP of the corporate debtor with the approval of 90% of the voting share of the committee of creditors ("CoC"), was inserted in the Code by the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 effective from 6 June 2018.
Although Section 12A doesn't stipulate any time period as to when an application for withdrawal of any insolvency petition can be made after its admission, Regulation 30A of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 stipulates that such an application for withdrawal shall be made to the resolution professional before the invitation for expression of interest is issued. The said invitation is made for inviting expression of interest from the resolution applicants intending to submit resolution plan for the resolution of the insolvency of the corporate debtor. Thereafter, the CoC considers the application for withdrawal and if the same is approved by the CoC with 90% voting shares, the resolution professional is required to submit the same with the National Company Law Tribunal for its approval.
In many cases, the Adjudicating Authorities (NCLT/NCLAT) have allowed withdrawal of the insolvency resolution application owing to the settlement reached between the corporate debtor and creditors. However, it would be interesting to examine whether an application for withdrawal which is made after the issuance of the invitation for expression of interest can be accepted, particularly where no resolution applicant has come forward with an intention to submit any resolution plan for resolution of the insolvency of the corporate debtor. In such case, not allowing such settlement would lead to liquidation of the corporate debtor.
Further, even in cases where any resolution applicant has submitted the resolution plan, it would be interesting to examine whether any application for withdrawal can be approved by the CoC and then be considered by the Adjudicating Authorities for approval in case the settlement terms are more favorable for all the stakeholders of the corporate debtor than the resolution plan submitted by the resolution applicant. If not approved, whether decision of CoC can be challenged/questioned which has been given the power to approve or disapprove the resolution plan/withdrawal.
In the recent development in Essar Steel case, the promoters/shareholders of the corporate debtor had submitted a withdrawal plan before the CoC when the entire process of inviting bids, their evaluation and selection was made by the CoC and the successful bidder was accordingly announced. Although CoC of Essar have rejected the proposal submitted by the promoters of the corporate debtor, it is likely that the promoters may approach the Adjudicating Authorities against the decision taken by of the CoC. It will be interesting to see the fate of the last minute proposal made in order to take the corporate debtor out of the insolvency.
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