That 2020 would wreak such havoc, no one must have imagined.
As the world continues to reel under the COVID 19 pandemic, several businesses have shut shop even as several others struggle to survive, let alone make profit. Faced with an economic crisis of unprecedented proportions, governments across the globe are struggling to mitigate the financial stress and prevent insolvency.
The Government of India in March raised the minimum default threshold for accepting cases under the Insolvency and Bankruptcy Code, 2016 (IBC) from INR 1 LAKH to INR 1 CRORE. Later in May, sections 7, 9 and 10 of the IBC which relate to initiation of insolvency proceedings by financial creditors, operational creditors and debtors (voluntary insolvency), respectively, were suspended. Not only were insolvency proceedings suspended for a year, the Government also announced that a special insolvency resolution framework for MSMEs would be notified under section 240A of the IBC. Additionally, that COVID-related debt would be excluded from the definition of default under the IBC for the purpose of initiating insolvency proceedings.
While the measures were intended to provide relief, the response has been a mixed bag. It is argued that suspension of the IBC will put many problems on the backburner instead of solving them, not to mention prove counterproductive as companies which could have restructured under the IBC will now be pushed into liquidation. Meanwhile, companies not immediately facing liquidation will face deterioration in value. There is need instead for a framework that ensures time-bound resolution among all classes of creditors and for the development and strengthening of other channels for resolution of non-performing assets (NPAs). Suspending the IBC seems like a knee-jerk reaction to the COVID crisis and there is concern over gross misuse by wilful defaulters and fraudulent promoters. Besides, the move may not benefit all; smaller businesses unable to cope with the magnitude of the crisis may be better off shutting down, not so the larger businesses. In this context, it would be better for the Government to assess deeper structural changes to its insolvency framework.
Addressing these and similar such issues is Legal Era Magazine’s Virtual 5th Annual Insolvency Summit 2020 on 21st October 2020 where legal & Insolvency Experts will dissect, discuss and attempt to resolve the problems facing the insolvency resolution framework in these times. Carefully curated sessions will help all concerned stakeholders best negotiate the financial minefield and avoid the pitfall that is insolvency.
