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Insolvency proceedings against corporate debtors as well personal guarantors can go together: Finance Minister
Finance Minister Nirmala Sitharaman while replying to a debate on the Insolvency and Bankruptcy Code (Second Amendment) Bill, 2020 in the Rajya Sabha (which passed the proposed legislation to replace an ordinance in this regard with voice vote), said that the law provides for carrying out insolvency and bankruptcy proceedings against corporate debtors as well personal guarantors...
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Finance Minister Nirmala Sitharaman while replying to a debate on the Insolvency and Bankruptcy Code (Second Amendment) Bill, 2020 in the Rajya Sabha (which passed the proposed legislation to replace an ordinance in this regard with voice vote), said that the law provides for carrying out insolvency and bankruptcy proceedings against corporate debtors as well personal guarantors together.
She said, "The corporate debtor often has guarantors. So for comprehensive corporate insolvency resolution and liquidation we felt it was necessary that the insolvency of the corporate debtor as well as its guarantors are considered together to whatever extent it is possible."
In June, an ordinance was promulgated to amend the Insolvency and Bankruptcy Code (IBC) whereby fresh insolvency proceedings will not be initiated for at least six months starting from March 25 amid the coronavirus pandemic.
The Finance Minister also clarified that insolvency proceedings against corporates defaulting on loans prior to March 25 will continue and the amendment will not apply to those cases.
The Finance Ministry had decided to suspend Sections 7, 9 and 10 of the IBC as businesses faced hardships because of the COVID-19 pandemic. The move was to prevent corporate persons experiencing distress on account of the unprecedented situation, being pushed into insolvency proceedings.
She cited data for NPAs of commercial banks during 2018-19, and informed the House that Lok Adalats recovered 5.3%, Debt Recovery Tribunals (DRTs) recovered 3.5% and SARFAESI recovered 14.5%. On the other hand, IBC ensured 42.5% of recovery.
According to her most of the resolutions were made to make the company to be a going concern only. "Priority is to keep the company to be a going concern rather than to liquidate them at the earliest." According to her, 258 companies rescued had assets of Rs. 96,000 crore and the 965 companies sent for liquidation had assets of Rs. 38,000 crore.
So in value terms, the assets rescued were about two and a half times of the assets which went to liquidation, Sitharaman said.
The amendment provides for suspension of Sections 7, 9 and 10 of the IBC for at least six months and extendable up to one year from March 25, 2020. In this regard, a new section '10 A' has been inserted in the IBC.