In this post we will discuss about the recent decision of the government to extend the freeze on action under the Insolvency and Bankruptcy Code (IBC) by another three months.
Government extends freeze on action under IBC for another 3 months.
As due to COVID -19 many businesses suffered looses and keeping in mind that a fresh relief which was for businesses hit by the Covid-19 pandemic, the government on Thursday extended the freeze on action under the Insolvency and Bankruptcy Code (IBC) by another three months.
The original suspension was effective six months starting March 25 and the move notified by the ministry of corporate affairs will now be applicable until Christmas. The government has powers to extend it by another three months, if required. “Extension of suspension of sections 7, 9, 10 of the IBC reinforces the government’s commitment to protecting businesses. It also gives companies breathing time to recover from financial stress,” finance minister Nirmala Sitharaman said on social media.
Insolvency and Bankruptcy Code, 2016
Insolvency and Bankruptcy Code 2016 was implemented through an act of Parliament. It got Presidential assent in May 2016. This law came into existence due to huge pile-up of non-performing loans of banks and delay in debt resolution.
IBC applies to companies, partnerships and individuals. It provides for a time-bound process to resolve insolvency. When a default in repayment occurs, creditors gain control over debtor’s assets and must take decisions to resolve insolvency. Under IBC debtor and creditor both can start ‘recovery’ proceedings against each other.
This notification came after Parliament amended IBC to give the government powers to suspend any insolvency action either by lenders, suppliers or by promoters in case of default in payment. The government had earlier imposed the order backed by an Ordinance.
“An extension in a calibrated manner, rather than a blanket extension demonstrates careful wait-and-watch approach of the government and a confidence that economic conditions could be slowly improving,” said L Viswanathan, partner at law firm Cyril Amarchand Mangaldas.
Experts fear that there may be a flurry of cases once the IBC freeze is lifted and could clog the National Company Law Tribunal benches.
While manufacturing activity has resumed, there are several services sectors, such as tourism and hospitality, which have seen only limited opening up or remained shut, hitting cash flows and repayments.
This post was written by Bharti Verma
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