- 19-Apr-2025
- Healthcare and Medical Malpractice
Under the Insolvency and Bankruptcy Code (IBC), a company can file for insolvency through an application before the National Company Law Tribunal (NCLT). However, there are instances where a company may seek to withdraw the insolvency application, whether it is the corporate debtor (the company itself) or a creditor who has filed the application. The withdrawal of the application is governed by specific provisions under the IBC and can only be done under certain conditions.
A corporate debtor (the company facing insolvency) can withdraw its insolvency application under the Corporate Insolvency Resolution Process (CIRP), but the process has specific criteria.
If the application has been filed by the corporate debtor under Section 10 of the IBC, the debtor can withdraw the application before the admission of the insolvency by the National Company Law Tribunal (NCLT). However, if the application has already been admitted, withdrawal is no longer possible unless agreed by the creditors or under special circumstances.
Once an insolvency application has been admitted by the NCLT, the debtor cannot unilaterally withdraw the application.
With Creditor Approval: The corporate debtor may request to withdraw the insolvency application if the committee of creditors (CoC) approves it. The approval of a majority of creditors (representing 90% of the total debt) is needed for the withdrawal to be allowed. The CoC must be satisfied that the debtor has a credible resolution plan and can settle the debt outside the insolvency process.
If the insolvency application has been filed by a creditor (under Section 7 of the IBC), the creditor may withdraw the application before it is admitted, provided the debtor has paid the outstanding debt.
Once the NCLT admits the application and the insolvency process begins, the creditor cannot withdraw the application unless the debtor repays the debts in full or a resolution plan is proposed and accepted by the CoC.
If the application for withdrawal is being made after admission, the NCLT's approval is required. The NCLT may allow the withdrawal of the application only if it is satisfied that there is sufficient reason for doing so.
If the NCLT finds that the company has reached a satisfactory settlement with creditors or that there is an effective restructuring plan, the tribunal may approve the withdrawal.
If the application is withdrawn before it is admitted by the NCLT, the company is not bound by the insolvency process, and no moratorium will be imposed.
If the application is withdrawn post-admission, the moratorium (imposed under Section 14 of IBC) may be lifted, and the company can continue operations under the existing management. However, this would require a resolution plan or other arrangements to clear outstanding debts.
For a creditor to withdraw the application, the company must settle the outstanding debts, which is often the main reason for the withdrawal request.
In some cases, the company may propose an alternative restructuring plan or an agreement with creditors, which leads to the withdrawal of the insolvency application.
Suppose ABC Ltd., a manufacturing company, files for insolvency under Section 10 of the IBC due to its inability to pay creditors. However, after filing, the company reaches an agreement with its major creditors to settle the debts outside the insolvency resolution process.
The company may seek to withdraw the insolvency application before it is admitted by the NCLT. If the application has already been admitted, it would require the approval of the CoC and the NCLT to withdraw the application, as creditors need to approve the company's ability to pay off its dues outside the insolvency framework.
If the creditors approve, and the NCLT is satisfied with the settlement, the application could be withdrawn, and the company would continue operations without entering the Corporate Insolvency Resolution Process (CIRP).
A company can withdraw an insolvency application under certain conditions, especially before the National Company Law Tribunal (NCLT) admits the application. After admission, withdrawal is more difficult and typically requires creditor approval and tribunal consent. The Committee of Creditors (CoC) plays a crucial role in approving such withdrawals. The company must demonstrate its ability to settle its debts or propose a viable restructuring plan for the withdrawal to be considered.
Answer By Law4u Team
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