To avoid a slew of fresh bankruptcy filings, the government has decided to suspend several provisions of the Insolvency and Bankruptcy Code, according to a senior government official.
The cabinet, in a meeting held on Wednesday, approved the move for six months, or till the time the government may seem fit, the official said.
The decision will help small and large companies, and ensure insolvency proceedings are not initiated against them by taking undue advantage of the hardships faced due to the Covid-19 pandemic, said Atul Pandey, partner at law firm Khaitan & Co. “A lot of firms that are staring at defaults due to the halt in economic activity would benefit.”
The government will suspend sections 7, 9 and 10 of the IBC, the official said. Sections 7 and 9 allow financial and operational creditors respectively to initiate insolvency; and section 10 allows for voluntary insolvency filing. The changes will be notified soon, the official said.
BloombergQuint awaits a response to queries emailed to the Ministry of Corporate Affairs.
The move is in line with the government's attempt to prevent companies from being forced into insolvency as a result of economic stress caused by the lockdown. On March 24, Finance minister Nirmala Sitharaman had hinted at this move if the economic activity didn't resume. As a first step, the government has already increased the threshold for default to Rs 1 crore from Rs 1 lakh to prevent insolvency proceedings against small businesses.
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