Key Highlights of Insolvency And Bankruptcy Code (Amendment) Ordinance, 2020
On account of COVID 19 pandemic which has impacted the business, financial markets and economy all over the world, including India, and has thereby created uncertainty and stress for businesses for reasons beyond the control, the Ministry of Law and Justice, Government of India has promulgated the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020 (“said Ordinance”) to mitigate disruptions in business operations caused due to the pandemic following the nationwide lockdown which has added to the disruptions of businesses. The said Ordinance was also promulgated due to inadequate number of resolution applicants to rescue the corporate debtor on account of the pandemic.
The amendments introduced in the Insolvency and Bankruptcy Code, 2016 vide the said Ordinance
The said Ordinance introduced amendments to the Insolvency and Bankruptcy Code, 2016 (“IBC”) by way of inserting two sections i.e. Section 10A and Section 66 (3), which are discussed as under:
- Section 10 A inserted in the principal act in effect suspends the initiation of corporate insolvency resolution process under Sections 7, 9 and 10 of the IBC against a corporate debtor, for any default arising on or after 25.03.2020, for a period of 6 months or such further period not exceeding one year from the said date, as may be notified on this behalf. The said provision indicates that the corporate insolvency resolution process against the corporate debtor has been suspended for a period of 6 months, however, the same maybe extended up to 1 year.
- Proviso to Section 10 A further states that no application shall ever be filed for initiation of corporate insolvency resolution process of a corporate debtor for the default occurring during the period of suspension of the corporate insolvency resolution process.
- It was further clarified vide the explanation to Section 10 A of the said Ordinance that the provisions of Section 10 A shall not apply to any default committed under the Section 7, 9 and 10 of the IBC before 25.03.2020, meaning thereby that the corporate insolvency resolution process can be initiated against the corporate debtor in event of default that may occur before 25.03.2020.
- Sub-section (3) of Section 66 has been inserted which stipulates that a resolution professional cannot file an application before the Hon’ble Adjudicating Authority for fraudulent trading or wrongful trading against the directors of the companies in respect of defaults against which the corporate insolvency resolution process has been suspended by virtue of Section 10 A.
Conclusion: Therefore, there is no blanket ban on initiation of corporate insolvency resolution process vide the said Ordinance. The suspension concerns only those defaults which have occurred on or after 25.03.2020. If a corporate debtor has defaulted in payment of debt before 25.03.2020, then such a corporate debtor will not be protected by the suspension of the corporate insolvency resolution process vide the said Ordinance.
Sorry, the comment form is closed at this time.