The move is expected to formalise the withdrawal process which currently takes place in an ad-hoc manner, making it susceptible to fraud.
“If there is a business opportunity, closure of voluntary liquidation process midway may serve the interests of stakeholders and the economy better,” the regulator said in a discussion paper on Tuesday, seeking public comments on the proposed changes.
Under the proposed amendments, a firm can seek the adjudicating authority’s (AA) approval for withdrawal with a special resolution from its board or partners.
In order to curb the possibility of fraud, the withdrawal application shall include the approval of creditors representing two-thirds in value of the outstanding debt in cases where there has been no sale of assets, the paper said
In cases where the sale of assets had commenced, the application shall include the approval of all unpaid creditors, unless their dues are settled before passing of the resolution, it said.
“This will provide the stakeholders a streamlined option on the ex-ante basis, rather than knocking at the door of the AA every time or closing a process suo-moto,” the regulator said.
As per existing provisions, a firm is eligible for voluntary liquidation if it has no debt or is in a position to pay all its debts and the move, which has to be passed by a special resolution, is not being used to defraud any person.
The resolution also includes the appointment of an insolvency professional as a liquidator who only seeks the AA’s approval for dissolution after the liquidation is completed or for suspension of the process if they find that proceeds from the sale of assets will not be able to pay for the firm’s debts.
As of June 30 this year, 692 firms had initiated voluntary liquidation of which eight were withdrawn or suspended while 434 cases were still in the process.