Fresh insolvency proceedings likely to be suspended for 6 months

In a major relief for businesses, the government is considering the suspension of new insolvency proceedings under the Insolvency and Bankruptcy Code for six months, sources said.

The government may amend the IBC, 2016. An ordinance will have to be promulgated for the same and presidential approval would have to be sought to suspension of Section 7, 9 and 10 until further notice.

Last month, while announcing the increase in default threshold to Rs 1 crore, Finance Minister Nirmal Sitharaman said that if the situation of coronavirus outbreak continued beyond April 30, then the ministry would consider suspending section 7, section 9 and section 10 of the IBC for a period of six months so the companies can be stopped from being forced into insolvency proceedings.

The concerned sections empower lenders to approach National Company Law Tribunals (NCLT) against the defaulting entities. Section 7 of the IBC allows initiation of corporate insolvency resolution process by financial creditor, while Section 9 allows operational creditors to file application for initiation of insolvency process by operational creditor.

Further, a corporate debtor who has committed a default, can filed for initiation corporate insolvency resolution process under Section 10 of IBC.

There have been calls from several sections of the industry for the move as due to the coronavirus crisis and the nationwide lockdown business are in a standstill making it difficult for firms to pay their dues.

Earlier, speaking to IANS, Abheek Barua, the Chief Economist of HDFC Bank had said that such a move is required during the present crisis.

Manoj Kumar of Corporate Professionals said that if suspension actually takes place, then it may also be extended beyond six months. He further said that the duration of the suspension is also dependent on the moratorium period of loan repayment provided by the Reserve Bank of India.

Vijay K Singh, Senior Partner at Singh & Associates was of the view that CIRP proceedings in the cases which were admitted by the NCLTs would be allowed to continue and reach to its logical conclusion.

"The spread of COVID-19 and countrywide lockdown completely stopped business activities in the country across sectors and its impact on the business is severe. The suspension of Section 7, 9 & 10 IBC proceedings for certain period of time has become necessary to save the corporate sectors and help them survive the present crisis," Singh said.