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IBC Proceedings Suspended for Defaults post- March 25

As per the reports, the Union Cabinet on 3rd June, 2020 cleared the proposal to suspend insolvency proceedings under the Insolvency & Bankruptcy Code (IBC) to avoid companies at large from being forced into insolvency proceedings for Non-Performing Assets (NPAs) during the COVID-19 period starting from 25th March, 2020. This move has been proposed as the Government gave a proposal to introduce Section 10A under Section 10 of IBC, 2016 by passing an Ordinance soon. The creditors of a company cannot file an insolvency application against a company, which will be in effect for the next six months & can be extended up to one year.  This would mean that any default from 25th March, 2020 until a date which will be notified later, cannot be dragged for insolvency proceedings before the tribunals. This is an exception to such defaults. The Union Finance Minister Smt. Nirmala Sitharaman announced suspension of any fresh initiation of insolvency proceedings up to one year on 17th May, 2020 as a part of the Atmanirbhar Bharat Package, excluding debt arising due to COVID-19 to be considered as default. But, the Government had not notified the date from which the move was to be considered.  It was on March 24th 2020, when Smt. Sitharaman had said that if the situation remained exposed before 30TH April, 2020 then the Government may consider suspending Section 7,9 & 10 of IBC for a period of six months to prevent companies from being forced into insolvency proceedings during these difficult times. This new clause overrides (makes void & null) Sections 7,9 & 10 of IBC, 2016. Section 7 deals with financial creditors of a company to initiate insolvency proceedings before the National Company Law Tribunal (NCLT), whereas, Section 9 deals with operational creditors to imitate an action & Section 10 allows a defaulting company to file an application before the NCLT to declare it as insolvent. However, it is also to be noted that the old proceedings will continue under the Code.

 

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