Money & Banking

Increased default threshold for IBC trigger comes into effect

KR Srivats New Delhi | Updated on March 25, 2020 Published on March 25, 2020

From ₹1 lakh, the threshold has been raised to ₹1 crore

The Ministry of Corporate Affairs (MCA) has operationalised the Centre’s move to raise the default threshold for initiating corporate insolvency resolution proceedings (CIRP) against companies to ₹1 crore from the earlier ₹1 lakh.

The move, which will by and large prevent the start of insolvency proceedings against MSMEs amid the pandemic, will have implications for all corporate debtors in general, say insolvency law experts.

Meanwhile, in view of the 21-day countrywide lockdown announced by Prime Minister Narendra Modi on Tuesday evening, there are indications that the National Company Law Tribunal (NCLT) Benches — which were earlier closed till March 31 — will remain closed for judicial work till April 15.

This may become a crucial factor in the government’s decision on whether Sections 7, 9 and 10 of the Insolvency and Bankruptcy Code (IBC) need to be suspended or not, experts added. Any suspension of the three Sections would mean CIRP cannot be initiated by financial creditors, operational creditors or other stakeholders against the defaulting corporate debtor.

Experts’ take

Saurav Kumar, Partner at law firm IndusLaw, said the amendment will apply to all borrowers and not be limited to MSMEs. “While the amendment will provide a breather to relatively small corporate borrowers, the MSME suppliers (operational creditors) who may have supplied goods or carried out services are likely to have a negative impact from the amendment. The bigger impact will come about if Section 7,9 and 10 of IBC are suspended towards the end of April,” he said.

Manisha Rawat, an Insolvency Professional and Head-Compliance of Felix Advisory, said the government move offers relief to small and medium enterprises. However, it is a matter of concern for creditors and lenders to the MSME sector, she added.

“Although it was the need of the hour as a default of ₹1 lakh for dragging a company to insolvency proceedings was too low, raising it to 100 times may not be in the interest of the creditors. This will be a big blow for small and mid sized operational creditors, particularly,” she said.

Published on March 25, 2020

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