Answer By law4u team
The Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code (IBC) allows for the resolution of a corporate debtor's financial distress. However, under specific circumstances, the process can be withdrawn. Section 12A of the IBC provides for the withdrawal of CIRP before the final resolution plan is approved, offering the corporate debtor a chance to resolve the issue outside of insolvency. Withdrawal is subject to specific conditions and the consent of the Committee of Creditors (CoC).
Process for Withdrawal of CIRP
Eligibility for Withdrawal (Section 12A)
Section 12A of the IBC allows the withdrawal of CIRP after the application for insolvency is admitted by the National Company Law Tribunal (NCLT) but before the approval of a resolution plan.
The corporate debtor or resolution applicant can file an application for withdrawal of the CIRP at any time before the CoC approves the resolution plan.
Conditions for Withdrawal
Creditors' Consent: For the CIRP to be withdrawn, the Committee of Creditors (CoC) must approve the withdrawal. The CoC approval must be by a 90% majority of the financial creditors in terms of the value of the debt.
Full Payment of Debt: The withdrawal can only occur if the corporate debtor has paid all the financial creditors their dues or come to a settlement with them. The payment of dues to the creditors must be complete and in full, making the need for the CIRP redundant.
Filing the Withdrawal Application
Once the CoC has approved the withdrawal, the corporate debtor, or the party that initiated the CIRP, can file an application with the NCLT for approval.
The application to the NCLT should include evidence that the dues have been paid or settled in full with creditors and that the CoC has approved the withdrawal.
The NCLT will review the application and, if satisfied with the evidence and the CoC's decision, may approve the withdrawal of the insolvency proceedings.
NCLT's Role in the Withdrawal Process
Approval by NCLT: The NCLT must approve the withdrawal application. Upon approval, the moratorium imposed under Section 14 of the IBC (which prohibits any legal actions against the corporate debtor) will be lifted.
The moratorium will be lifted, and the company can resume its operations as before, provided there are no other ongoing legal challenges.
Impact on the Corporate Debtor
If the CIRP is withdrawn successfully, the company can avoid the long-term implications of the insolvency process, such as the sale of assets or liquidation.
The company can continue to operate under the existing management, and the business can be restructured or re-financed as per the terms agreed with creditors.
Timeline for Withdrawal
The application for withdrawal can be filed at any time before the resolution plan is approved, which is typically within 180 days from the commencement of the CIRP, with the possibility of an extension of up to 270 days.
If a resolution plan is not approved within this time frame, the CIRP may transition to liquidation. However, if the withdrawal is requested before the approval of the resolution plan, the proceedings can end without going into liquidation.
Example
Suppose XYZ Ltd., a company undergoing CIRP, has managed to reach an agreement with its creditors and has paid off all its financial dues. The Committee of Creditors (CoC) unanimously approves the withdrawal of the CIRP under Section 12A of the IBC.
Step 1: The company files a withdrawal application with the NCLT, providing proof of debt settlement with creditors.
Step 2: The NCLT reviews the application and ensures that all the conditions are met, including the approval of the withdrawal by the CoC.
Step 3: Upon satisfaction, the NCLT grants approval to withdraw the CIRP. The moratorium is lifted, and the company is allowed to resume its operations.
Conclusion
The withdrawal of CIRP is possible under Section 12A of the Insolvency and Bankruptcy Code (IBC), provided that the Committee of Creditors (CoC) approves it, and the company has settled its debts. The process involves the corporate debtor or the applicant filing a withdrawal application, which is then reviewed and approved by the NCLT. Successful withdrawal allows the company to avoid the full consequences of insolvency, such as liquidation, and continue operations.
