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Relief from Insolvency for six months

Relief from Insolvency for six months

The Union Cabinet has cleared a proposal on 22nd April, 2020 from the Ministry of Corporate Affairs to give companies relief from insolvency for the next six months i.e., October, 2020 by amending the Insolvency and Bankruptcy Code, 2016. This amendment has been proposed to give a six month window. Lenders or creditors during these six months, under the current impact due to the pandemic of COVID-19, cannot move a fresh case of default for bankruptcy. The Central Government is awaiting the assent of the President to allow the new clause to the IBC, i.e., Section 10A, which will suspend Sections 7,9, and 10 for six months or until further orders.

This clause shall not be extending over a year. Section 7 of the IBC deals with financial creditors and initiates insolvency action whereas, Section 9 allows operational creditors to initiate an action before the National Company Law Tribunal/ Adjudicating Authority, and Section 10 allows a defaulting company to approach the National Company Law Tribunal (NCLT) to declare it as insolvent.

This has been done so that companies at large are not pushed into insolvency proceedings in force majeure causes of default. Finance Minister Nirmala Sitharaman had then also hiked the default threshold from Rs. 1 lakh to Rs. 1 crore for triggering insolvency proceedings. This move is expected to not only reduce the compliance burden, including financial burden of companies and limited liability partnerships (LLPs) at large, but also enables long-standing, non- compliant companies and LLPs to make a fresh start.


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