President Ram Nath Kovind on Friday promulgated an ordinance suspending the Insolvency and Bankruptcy Code (IBC) for a period of at least six months from 25 March to protect businesses from being dragged to bankruptcy courts.
This comes after the finance minister recently announced the government’s intent to suspend the code as a part of the economic relief measures presented by the government.
The IBC (Amendment) Ordinance says that no business can be taken to bankruptcy tribunals for defaults during the period of the IBC’s suspension.
The suspension will remain in force for six months or “such further period, not exceeding one year from such date, as may be notified in this behalf”, the ordinance said.
“…a nationwide lockdown is in force since March 25, 2020, to combat the spread of Covid-19, which has added to the disruption of normal business operations… It is difficult to find resolution applicants to rescue the corporate person who may default in the discharge of their debt obligation,” it said.
.
.The ordinance received the President’s assent on Friday. The Union cabinet had approved the ordinance on Wednesday.
..It suspended IBC Sections 7, 9 and 10, to provide relief to borrowers from being dragged into insolvency amid the struggle with the impact of the lockdown.
Section 7, 9 and 10 of the Insolvency and Bankruptcy Code, 2016 allow for insolvency filings by financial creditors, operational creditors and the corporate debtor itself. This effectively shuts down all insolvency filings against any company that defaults on a debt or payment.
This means that lenders will not be able to drag borrowers into insolvency for any debt default for six months beginning March 25. Equally, borrowers will themselves also not be able to declare bankruptcy in this period.
The government has also amended the section that empowered resolution professionals to initiate insolvency against promoters or related parties of the corporate defaulter for this period.
