The cabinet issued an ordinance to amend the insolvency law; Default due to Kovid outside the scope of IBC

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New Delhi: The Cabinet on Wednesday approved the ordinance to amend the Insolvency and Bankruptcy Code (IBC), under which the insolvency proceedings will not be renewed for omissions due to COVID-19 epidemic.
The lapse of payment since March 25 – the day a nationwide lockout began to curb coronovirus infections – would not be considered to initiate bankruptcy proceedings for a fixed period, he said.
Sources said that the ordinance amending the IBC has been approved by the cabinet.
The three sections of the Code – which provide for a time-bound resolution process involving the stressed assets market – will be suspended. He said that the time period would be for six months and would not exceed one year.
Sources said that a competent provision has been approved by the Cabinet, in which the Ministry of Corporate Affairs should suspend the three sections.
Default caused by COVID-19 will not be considered to initiate insolvency proceedings. As a result, companies defaulting on repayment obligations due to disruption caused by the epidemic will not be pushed into bankruptcy.
According to him, defaults not related to the epidemic and applications for insolvency made before March 25 will be dealt under the code.
On 17 May, Finance and Corporate Affairs Minister Nirmala Sitharaman said the government would grant various exemptions under the insolvency law, including suspending new proceedings for up to a year.
“Ultimately, when the lockdown is lifted immediately, you’re not sure how much the businesses will be restored … No new insolvency actions will be initiated for up to a year,” she said.
Under the IBC, a company can seek insolvency proceedings against a company, even if the default is only one day. It is subject to a minimum limit of Rs 1 crore. Earlier this limit was Rs 1 lakh.
The measures were announced as part of the fifth and final installment of the Rs 20 lakh crore stimulus package, which was unveiled to boost the economy devastated by the epidemic and its subsequent lockdown.

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