Insolvency suspension for Covid defaults extended by 3 months

The government has extended the suspension of insolvency cases against fresh Covid-related defaults by three months from September 25, on the expiry of the current six-month deadline on Thursday, according to an official notification.

Parliamentary approval has already been obtained by the Centre, through the Insolvency and Bankruptcy Code (Second Amendment) Bill, 2020, for an up to one-year suspension of the initiatition of insolvency proceedings for fresh defaults from March 25. The idea was to help cash-strapped firms tide over the Covid impact without the fears of getting dragged to the National Company Law Tribunal (NCLT).

An official source said that the government will review the situation before the latest extension expires, and another three-month extension will be granted only if it’s necessary.

FE had, on Wednesday, reported that the government might grant a six-month extension in one go but a final call on it would be taken by finance and corporate affairs minister Nirmala Sitharaman.

Sections of the stakeholders had favoured a six-month extension in one go on ground that it will lend “more predictability” to the insolvency system. However, some others wanted the government to take a cautious view and limit the extension, for the time being, to just three months so that an informed decision can be taken later, when more clarity about the pandemic-hit businesses emerges.

The IBC amendment Bill was brought in to replace an ordinance that was promulgated in June to protect thousands of firms from being dragged into insolvency proceedings.

The government had sought to suspend 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.