‘IBC suspension not a setback for insolvency reforms’

The recent amendments to the IBC including suspension of certain provisions in view of Covid-19 are not a setback for insolvency reforms, said the Comptroller and Auditor General (CAG), Girish Chandra Murmu, on Thursday.

Delivering the 4th Annual Day lecture of the Insolvency and Bankruptcy Board of India ( IBBI) on a virtual mode, Murmu said that these are only temporary measures taken to prevent economically-viable firms from being dragged to insolvency due to force majeure conditions.

It is in the spirit of “managing change” that these amendments and suspension of certain provisions of IBC have been undertaken, he added.

The theme of Murmu’s lecture was ‘IBC: Adaptability is the key to Sustaining Reform in Times of a Pandemic’.

It may be recalled that government had, on June 5, promulgated an ordinance to suspend initiation of Corporate Insolvency Resolution Process (CIRP) against defaults arising on or after March 25, when the Covid-induced lockdown was announced.

This suspension, which was initially announced for six months till September 25 (extendable up to one year), has now been extended to December 25.

Talking about the steps needed on the IBC front “once the pandemic is behind us”, Murmu said there is need to introduce provisions for resolving ‘Group Insolvency’ and ‘Cross Border Insolvency’.

Implementing various provisions related to individual insolvency and bankruptcy is also an agenda that has to be examined based on emerging economic situation, he said.

“Further strengthening the judicial infrastructure to deal with insolvency and bankruptcy matters in the country would also need to be given priority,” Murmu said. As the government prepares the insolvency landscape for the post Covid-19 phase, it is expected that short- and medium-term measures will be successful in preserving the life of companies and livelihood of persons in distress.

Murmu highlighted that rescuing the life of firms being the prime objective of IBC, it must not be used to take away their lives prematurely.

Default limit increased

The CAG noted in his lecture that in view of the pandemic, certain steps were taken to provide relief for CIRP. The threshold limit of default for initiating insolvency process under the code was ₹1 lakh, which had been increased to ₹1 crore.

This has proved to be a relief measure to protect the interest of MSME debtors from being pushed into insolvency due to pandemic induced financial stress as the earlier threshold limit for triggering insolvency could have been easily met in the present situation, he said.

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