The Cabinet on Wednesday approved the promulgation of an ordinance to bring in changes in Insolvency and Bankruptcy Code (IBC) to help companies amid the raging pandemic. A senior government official confirmed the approval and said that the detailed announcement will be made later.

“Changes in the code will enable suspension of IBC proceedings in specific default cases from specified date,” the official said. Specified cases refer to Covid-19 related debts and the specified date will be March 25. Cases against specified default cases will be suspended till up to one year.

This is a follow-up action to the announcement made by Finance Minister Nirmala Sitharaman on May 17.

As a part of Atmanirbhar Bharat campaign, the government had proposed enhancement of Ease of Doing business through IBC related measures. It had raised the minimum threshold to initiate insolvency proceedings to ₹1 crore from ₹1 lakh, which largely insulates MSMEs.

It was proposed that special insolvency resolution framework for MSMEs under Section 240A of the Code to be notified soon. It was also proposed to suspend fresh initiation of insolvency proceedings up to one year depending upon the pandemic situation. The Centre will be empowered to exclude Covid-19 related debt from the definition of “default” under the Code for the purpose of triggering insolvency proceedings for which an ordinance was to be promulgated.

This is the second major change in IBC related regulations. Earlier on March 30, the Insolvency and Bankruptcy Board of India (IBBI) amended the CIRP (Corporate Insolvency Resolution Process) Regulations to ensure that the period of lockdown not be counted for the purposes of the time-line for any activity that could not be completed due to the lockdown, in relation to a corporate insolvency resolution process. This would, however, be subject to the overall time-limit provided in the Code.

Related Topics
comment COMMENT NOW