Withdrawal of Voluntary Liquidation

Conversation between two friends. A couple of days back two friends ( Balu Sridhar & me ) were pondering over a situation where a company has already initiated its voluntary liquidation under section 59 of IBC (Code), Liquidator has been appointed, ROC/IBBI has been intimated and all the other pre-conditions and conditions-subsequent have been completed. The liquidator is marching ahead with liquidation of assets and other processes. Then arises a business opportunity and the promoters/shareholders are tempted to lap it up. For this, the ongoing liquidation should stop. They approach the liquidator only to know that the liquidator does not have powers to stop the liquidation.

Once initiated, no enabling provision to stop a voluntary liquidation. The promoters approach the NCLT with prayers to withdraw the liquidation invoking powers of NCLT under section 60(5) of IBC, there being no express enabler in the Code to withdraw voluntary liquidation. Neither the Code nor the Voluntary Liquidation Regulations contain any provision regarding the intervention of the NCLT (being the AA) in the voluntary liquidation process, except for passing the order in case of dissolution, detection of fraud or insolvency of the subject company (regulation 40).

The absence of option for withdrawal of voluntary liquidation was also discussed in the “Discussion Paper on Voluntary Liquidation Process” dated 24th November 2020 [click here] under its paragraph numbers 3 to 6, 12 & 13. However, the concerns expressed in the discussion paper did not see the light of day.

Instances of voluntary liquidation being allowed by NCLT to be withdrawn. Recently, in voluntary liquidation of Jaiprakash Engineering and Steel Co. Ltd, a petition [CP (IB) No. 164/BB/2023] under section 59(7) of IBC was submitted before Hon’ble NCLT (Bengaluru) for dissolution of the company. Subsequently, a Memo was filed by the Liquidator for withdrawal of the petition for the reason that the company (CP) is not in a position to pay its outstanding debts to a particular entity and to hand over the management of the company back to its directors. The Hon’ble NCLT permitted the withdrawal and roll back the voluntary liquidation by its Order dated 16.04.2024 [click here].

Prior to this, again before the Hon’ble NCLT (Bengaluru), in CP(IB) No. 35/BB/2023 in the matter of Shawn Johny Mathew vs. Omprakash Joshi in voluntary liquidation of M/s Valiyaveettil Ventures Private Limited, the voluntary liquidation of the company was allowed to be withdrawn by its Order dated 02.06.2023 [click here]. In this case, the petition for withdrawal was made by the shareholders of the company for reason of availing business opportunity which came up during the voluntary liquidation process.

There are quite a few other instances of voluntary liquidation being allowed by the NCLT like in the following cases:

1.?? Central Inland Water Transport Corporation Limited - for reasons of claims pending against the company exceeding the assets. So, the company was not solvent. Further, there were several litigations pending against the company. Therefore, the NCLT (AA) suspended the liquidation.

2.?? Ikon Real-Tech Private Limited – where no specific reason was mentioned in the Order.

3.?? Nirpender Logistics Private Limited – for stated reason of reviving the business

Apart from NCLT allowing withdrawal of voluntary liquidation, there are also instances where the company itself (CP) cancelled the process by passing a special resolution.

Therefore, options are now available. Based on the precedence, there are three options available now where withdrawal of voluntary liquidation may be possible:

1.?? Liquidator may approach the NCLT (AA) for suspending the process or

2.?? The company (CP) itself may approach the NCLT (AA) to cancel the process or

3.?? The company itself (CP) cancels the process by passing a special resolution