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With the economy returning to normalcy, the Centre has, as widely expected, allowed the IBC suspension valid till Wednesday (March 24) to lapse. The Insolvency and Bankruptcy Code will be back in full force from Thursday.
Till Wednesday evening, the Centre had not notified any legislative change to the insolvency amendment law enacted in 2020 that stipulated a maximum period of one year of suspension of the IBC from March 25 last year, when the Covid-induced lockdown came into effect.
By not extending beyond March 24 the suspension of insolvency proceedings i, the Corporate Affairs Ministry (MCA) has indicated that time has come for the IBC to resume rescue of the corporate debtor through resolution and failing that through liquidation. Stakeholders are bracing themselves for the normal functioning of the IBC ecosystem.
To insulate the corporate sector from the adverse impact of Covid-19, the government had ensured that any corporate debt default between March 25, 2020 and March 24, 2021, remained outside the IBC purview. This was done through an Ordinance issued on June 5 last year suspending IBC for six months from March 25 to September 25, 2020. Two subsequent three-month extensions, owing to the continued spread of the pandemic, kept the IBC in abeyance for one full year. The Ordinance was since replaced by a law.
Pre-pack mechanism
With the IBC suspension now revoked, the government is now working towards introduction of a ‘pre-pack’ insolvency mechanism for which certain legislative changes are required, official sources said. Indications are that pre-packs will initially be available for MSMEs and the legal changes wll be introduced in the ongoing Budget session of Parliament itself either through an amendment Bill or even an Ordinance.
Ashok Haldia, Chairman, Indian Institute of Insolvency Professionals of ICAI, told BusinessLine that “Post March 24, there is likely to be a surge in the number of IBC cases. This was not unexpected but would require strengthening of capacity and infrastructure of the NCLT to clear the backlog as well as new cases.”
Rajiv Chandak, Partner, Deloitte India, said: “The introduction of pre-pack will certainly help in resolving the cases consensually between corporate debtor and creditors and reduce some load on NCLTs.”
Faisal Sherwani, Partner, L&L Partners, said: “It may be best that the legislation is permitted to take force. After all, industries must also take responsibility for their debt and cannot expect the government to step in and play protector.”
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