Covid-19 defaults: IBC relief to be extended by three more months

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December 22, 2020 7:00 AM

The idea behind the suspension was to help thousands of cash-strapped firms tide over the Covid impact without the fears of getting dragged to the National Company Law Tribunal (NCLT).

For their part, many in India Inc have already factored in an extension of the relief up to March 24, 2021.For their part, many in India Inc have already factored in an extension of the relief up to March 24, 2021.

Finance and corporate affairs minister Nirmala Sitharaman on Monday said the suspension of insolvency cases against fresh Covid-related defaults could be extended by another three months from December 25.

Speaking at a virtual event of the Bangalore Chamber of Industry and Commerce, the minister said while insolvency proceedings against such defaults were suspended, the government also “hand-held” MSMEs to help them tide over the damaging impact of the Covid-19 through several measures, including the Rs 3-lakh-crore guaranteed loan programme. This Emergency Credit Line Guarantee Scheme (ECLGS) has now been extended to others as well, including larger companies in 27 stressed sectors and professionals like doctors or chartered accountants.

The government has already obtained Parliamentary apporval, through the Insolvency and Bankruptcy Code (Second Amendment) Bill, 2020, for an up to one-year suspension of the initiation of insolvency proceedings for fresh defaults from March 25. Initially, the suspension was kept valid for six months, which was then extended by three months. The government had planned to review, before the current deadline expired, whether a further extension of three months was required. For their part, many in India Inc have already factored in an extension of the relief up to March 24, 2021.

The idea behind the suspension was to help thousands of cash-strapped firms tide over the Covid impact without the fears of getting dragged to the National Company Law Tribunal (NCLT).

“Although Unlock is taking place and businesses are going through a reset phase, cash flows in various sectors that have been hit hard by the Covid-19 outbreak are still far from normal. Revenues are still under pressure. In such a situation, extending the suspension period by another three months would be a wise decision,” said a source.

The government had suspended invocation of three sections – 7, 9 and 10 — of the IBC for Covid-related defaults. These sections deal with the initiation of the insolvency proceedings by financial and operational creditors and corporate debtors.

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