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Government suspends IBC qua fresh bankruptcy proceedings amid covid pandemic - (05 Jun 2020)

Insolvency

In an unprecedented move, the Government of India has suspended fresh proceedings under Sections 7, 9 and 10 of the Insolvency and Bankruptcy Code, 2016 for six months which can be extended upto one year in wake of covid pandemic which has caused worldwide mayhem and disrupted economic and financial stability.

The President of India has promulgated ‘The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020’ as the parliament is not in session. The object behind the ordinance is that covid-19 pandemic has impacted business, financial markets, and economy all over the world, including India and created uncertainty and stress for business for reasons beyond control.

By way of ordinance, the Government has suspended initiation of proceedings under Sections 7, 9 and 10 of the Insolvency and Bankruptcy Code, 2016 to prevent corporate persons who are experiencing distress on account of unprecedented situation for the purpose of insolvency proceedings under the IBC. The Ordinance makes it clear that, no application for initiation of corporate insolvency resolution process of a corporate debtor shall be filed for any default arising on or after 25th March, 2020 for a period of six months which is not exceeding one year from such date meaning thereby no application shall ever be filed for insolvency for said default occurring during the said period.

However, so far as functioning of the Bankruptcy Code apart from the said excluded period is concerned, the Ordinance further clarified that the amended provision shall not apply to any default committed under the said sections before 25th March, 2020. So, the proceedings which are already pending in respect of Insolvency resolution prior to 25th March, 2020, shall continue to operate.

These are some series of steps taken by the Government in recent days in wake of preventing serious economic breakdown which is looming upon the country due to global pandemic. The suspension of insolvency during covid pandemic will definitely give boost to companies which are facing treat of shut down due to financial crunch and infuse positive approach into the corporate world during the present scenario.

Apart from this, recently the Government has also announced covid relief package addressed to every sector of the country covering the migrant labourers to farmers, middle class to corporate persons in order to cope up the crisis. Even the RBI in the month of March 2020 has announced a moratorium of three months which has been subsequently extended to six months i.e. upto 31st August, 2020 whereby the borrowers opting for moratorium can defer the payment of EMIs for six months upon payment of interest accrued during the moratorium period. Since the covid-19 pandemic has arrived, it has caused mayhem into the life and working of people across all quarters and the people as well as the companies and institutions have to brace up for its far flung effects.

Tags : FRESH PROCEEDINGS   SUSPENSION   IBC  

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