Voting threshold a hurdle in withdrawal of insolvency applications

India's leading law firms such as Shardul Amarchand Mangaldas & Co, Khaitan & Co and JSA Advocates & Solicitors have voiced concerns about the increasing difficulty in withdrawing companies from insolvency proceedings.

- Priyanka Gawande

A key hurdle is the stiff requirement for a 90% voting threshold from the committee of creditors (CoC) to approve such a withdrawal, even when a viable insolvency resolution plan is near, they said.

"One of the key challenges is the requirement of a 90% voting threshold from the committee of creditors (CoC), which is often difficult to achieve," said Shardul Shroff, executive chairman at Shardul Amarchand Mangaldas & Co.

Shroff was pointing to section 12A of the Insolvency and Bankruptcy Code that allows withdrawal of insolvency application against a corporate debtor only with the approval of 90% voting share of the committee of creditors, which is often hard to achieve.

Shroff noted another hurdle wherein once the insolvency proceedings are admitted, they are treated as proceedings in rem, meaning that they impact all stakeholders of the corporate debtor and not just the parties to the settlement.