President gives the green light to amending IBC

President Ram Nath Kovind on Friday approved an Ordinance to amend the Insolvency and Bankruptcy Code. The Ordinance gives permanent protection to companies for default during the six months, starting March 25, 2020, that can be extended up to a year through a government notification.

President Ram Nath Kovind on Friday approved an Ordinance to amend the Insolvency and Bankruptcy Code (IBC).

This exempts companies from facing insolvency proceedings against any default arising for at least six months, starting March 25, 2020.

The Ordinance gives permanent protection to companies for default during these six months that can be extended up to a year through a government notification.

The IBC amendment Ordinance stated, “No application shall ever be filed for initiation of corporate insolvency resolution process (CIRP) of a corporate debtor for the said default occurring during the said period.” This suspension of IBC will not be applicable to any default committed before March 25. The three sections which stand suspended include Section 7, 9, 10. A new Section 10A has been added to suspend the IBC.

Section 7 of the code enables financial creditors to start insolvency proceedings against a company while Section 9 gives these powers to an operational creditor. Under Section 10, the promoter of a company can trigger insolvency proceedings against his own company. Industry experts are concerned how the move will impact credit discipline, which was one of the main objectives of the IBC. “It needs to be seen how this provision is interpreted, especially the word ‘ever’, and how the government ensures that this provision is not misused,” said Anshul Jain, partner, PWC India.

The Ordinance said the pandemic had impacted the economy all over the world and created uncertainty and stress for businesses for reasons beyond their control.

Experts, however, said that till an application for insolvency is filed, there is no way for any possible resolution applicants to come forward.

“While the Ordinance acknowledges Covid-related disruption, it does not grant any relief to applicants whose resolution plans recently got approved. Their ability to implement the said plans will be directly impacted by such disruptions. A cut off date in this regard ought to have been considered,” said Diwakar Maheshwari Dispute Resolution Partner, Khaitan & Cop.