Analysis of Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020 i.e. IBC (Amendment) Ordinance, 2020
Reasons of Amendment:
1. The entire ecosystem for implementation of the Insolvency and Bankruptcy Code is in Place,
2. The Provisions relating to corporate insolvency resolution process and liquidation process for corporate person under the code are in operation,
3. Covid-19 Pandemic has impacted business, financial Market and economy all over the world, including India and created uncertainty and stress for business for reasons beyond their control.
4. A nationwide lockdown is in force since 25th March 2020 due to which normal business has disrupt.
5. Difficult to find adequate number of resolution applicants to rescue to corporate person who may default in discharge of their debt obligation.
6. Considered expedient to suspend under section 7, 9 and 10 of IBC, 2016 to prevent corporate person being pushed into insolvency proceedings under the said code for some time;
7. Considered necessary to exclude the defaults arising on account of pandemic.
Aashit Shah, Partner at J Sagar Associates said that “The IBC amendments have clarified that applications can continue to be filed for defaults that that taken place before March 25, 2020. This is certainly a positive change from the previous announcement as companies that had defaulted prior to March 25 were not in default due to Covid-19. However, a perpetual suspension of a creditor’s right to file insolvency resolution applications for defaults occurring during the 6 month period starting March 25 is excessive. Unless this is amended, it will leave creditors with limited options for a holistic debt restructuring. If the perpetual suspension continues, RBI must consider easing the provisioning norms for such defaulted assets. Another drawback of the amendment is suspending the right of a corporate debtor to file an insolvency resolution application. This option should have been left open, especially where other restructuring options fail. “
What is new?
Section 10A: Suspension of initiation of corporate insolvency resolution Process.
After section 10 of the IBC, 2016 the section 10A shall be inserted.
Notwithstanding anything contained in Section 7, Section 9 and Section 10 of the IBC, 2016-
> No application for initiation of corporate insolvency resolution process of a corporate debtor shall be filed, for any default arising on or after 25th March 2020 for a period of 6 Months or such further period not exceeding 1 year from such date as may be notified i.e 05.06.2020.
Provided that no application shall ever be filed for initiation of corporate insolvency resolution process of a corporate debtor for the said default occurring during the said period.
For the removal of doubt it is hereby clarified that the provision of this section shall not apply to any default under the said sections before 25th March 2020.