5 June 2020: The government, via an ordinance, has amended the Insolvency and Bankruptcy Code to prevent companies that have defaulted from being pushed into insolvency proceedings to prevent persons impacted by COVID-19.
The key laws in the IBC pertaining to this — Sections 7, 9 and 10 — have been suspended as defaults have been rising due to the unprecedented COVID-19 situation.
The ordinance reads that no application for initiation of CIRP will be filed for defaults arising on or after March 25, 2020 for 6 months or up to one year.
The Union Cabinet on June 3 cleared the proposal to suspend the insolvency proceedings under the Insolvency & Bankruptcy Code (IBC) to avoid companies at large from being forced into insolvency proceedings for non-performing assets during the COVID-19 period starting from 25 March.Provisions of Section 10A will not apply for defaults on or after March 25 until the next six months up to one year. The move is on the back of the government giving its nod to the proposal to introduce a new clause — 10A, under section 10 of the Insolvency and Bankruptcy Code (IBC), 2016. The section makes it clear that creditors cannot drag any company to courts/insolvency proceedings.
Categories: Legal update