The Centre has extended by three months the suspension of insolvency proceedings initiation against the corporate debtor for defaults arising post March 25, when the Covid-19-induced lockdown was announced.
It may be recalled that in response to the pandemic, the government had, on June 5, come out with an ordinance to prohibit the initiation of insolvency proceedings for defaults arising during the six months from March 25, 2020 (extendable up to one year).
Now with the first timeline of six months from March 25 getting over on Thursday, the Corporate Affairs Ministry (MCA) has extended the suspension of Sections 7 ( financial creditor), 9 (operational creditor) and 10 (corporate debtor) of the IBC by three more months – up to December 25 – a top official confirmed. This ordinance of June 5 was recently replaced through the enactment of Insolvency and Bankruptcy Code (second amendment) Act 2020.
While the law prohibits insolvency proceedings against the corporate debtor for defaults occurring during the specified period, it does not disallow such action against the personal guarantors of a corporate debtor.
There is also no prohibition of initiation of insolvency proceedings on defaults pertaining to debts taken prior to March 25
The government had, on June 5, come out with an ordinance to prohibit the initiation of insolvency proceedings for defaults arising during the six months from March 25.