IBC suspension ends today, extension likely

The six-month suspension of insolvency and bankruptcy proceedings against companies comes to an end on Thursday and government sources have indicated that there could be another extension in the light of the economic stress caused by the pandemic.

The Ministry of Corporate Affairs has received extensive feedback from the industry and is likely to announce a decision of whether the corporate insolvency resolution process should be suspended for another six months this week.

The Centre through an ordinance promulgated in June amended the Insolvency and Bankruptcy Code (IBC), exempting companies from facing insolvency proceedings against any default arising for at least a six month period starting from March 25, assuring no such proceedings will ever be initiated for default during this period. It also has a provision that this can be extended up to a year through a government notification. The bill passed by the Parliament is awaiting the president’s approval.

M S Sahoo, chairman, Insolvency and Bankruptcy Board of India, has stressed that rescuing a viable firm in these times is far more important than liquidating an unviable firm.

Industry is backing an extension on grounds that the economy is still reeling under negative growth. “The resolution process requires its own time and effort and quick fix solutions may not be feasible, given the regulatory and administrative requirements of the financial sector — particularly the banks. It (exemption) should be extended for at least three more months,” said Jyoti Prakash Gadia, managing director at Resurgent India.

Legal experts differ on whether investor sentiment will be adversely affected by the suspension.

“The underlying premise for the extension will be that the Indian economy needs measures for revival, which by its very nature will also require capital investment. From an investor’s perspective there are and will continue to be attractive opportunities, the IBC only represents a toolkit for such an investment and not the investment opportunity itself,” Abhijeet Das, partner, Cyril Amarchand Mangaldas Das, said.

IBC lawyers said an extension could improve investor sentiment as a positive policy initiative towards the business community.