IBC & Covid Flashcards
Context?
The government promulgated an ordinance 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 COVID-19 pandemic. Default on repayments from March 25, the day when the nationwide lockdown began to curb COVID-19 infections, would not be considered for initiating insolvency the proceedings for at least six months. Insolvency proceedings would not be initiated for “any default arising on or after March 25, 2020 for a period of six months or such further period, not exceeding one year from such date, as may be notified in this behalf”. ”No application shall ever be filed for initiation of corporate insolvency resolution process of a corporate debtor for the said default occurring during the said period,”
[MHNJE USUALLY BANKS CHE HAFTE THAKALE TAR COMPANY DEFAULT DECLARE KELI JAATE(UNDER IBC) -> PAN DUE TO LOCKDOWN 25 MARCH 2020 NANTAR CHE 6 MAHINE NAHI KELA JANAR DEFAULT -> HENCE NO INSOLVENCY PROCEDURE]
The ordinance suspends sections 7, 9 and 10 on grounds that?
the pandemic has created uncertainty and stress for business for reasons beyond their control
The suspension will also curb operational creditors, such as vendors and suppliers, from filing insolvency proceedings against corporate debtors. It will also block corporate debtors from self-filing in order to restructure debt.
[UNCERTANITY CREATED BY PANDEMIC]
Background?
Section 7, 9 and 10 of the Insolvency and Bankruptcy Code, 2016 allow for insolvency filings by financial creditors, operational creditors and the corporate debtor itself.
[UNDER 7,9,10 OF IBC 2K16 -> COMPANY INSOLVENCY CHA ARJ KARATA YETO]
Implications?
While the ordinance is intended to provide respite to the corporate debtor, taking away recourse under IBC will only mean ballooning of the liabilities without resolution. Certain provisions in the amendment can spring unwarranted consequences and open up the possibility of gross misuse of the leeway by wilful defaulters and fraudulent promoters. Suspending Section 10 of the Code will also hurt businesses stuck in the vicious cycle of debt and wanting to exit.
[JE WILLFUL DEFAULTERS AAHET TE DURUPAYOG KARU SHAKTAT]
