The Centre has issued a new notification extending the suspension of proceedings under IBC by three more months. The suspension was due on 25th September 2020.
Extension of Suspension of Proceedings Under IBC for Three Months
The government has suspended sections- 7, 9, and 10. This will prevent financial creditors, operational creditors, and corporate debtors from initiating fresh insolvency proceedings arising on or after 25th March 2020. The decision has been taken through an ordinance that empowers the government to extend IBC suspension up to one year. The Union Cabinet gave clearance to the proposal of suspending insolvency proceedings under the IBC for six months in June. The parliament has also passed the Insolvency and Bankruptcy Code (Second Amendment) Bill, replacing this ordinance. The move has shut down all insolvency filings against any defaulter company on debt.
RK Bansal, the managing director and chief executive officer of Edelweiss Asset Reconstruction Co, states the continuance of the IBC suspensions was necessary. He adds that even if the insolvency resolution is permitted, the admission would not have been possible as courts were not operating amid the pandemic. Besides, finding willing buyers is another challenge in such a situation. Nikhil Shah, managing director, Alvarez & Marsal notes that the COVID situation is natural, and losing control and value of one’s company in such circumstances is not fair. However, these experts opine that the government should have continued with Section 10 filings as it would allow the corporate debtors to trigger insolvency proceedings themselves.
The decision Will Give Time to Recover from Financial Stress- Finance Minister
Nirmala Sitharaman said that the decision was necessary to avoid business going insolvent owing to their rising non-performing assets. Further, she added that it would give them time to recover. The COVID-induced lockdown, which continued for more than two months, came as a complete blow to businesses.
In all, the parliament has suspended IBC filing till 25th December 2020, giving recovery time to affected businesses.