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www.carajput.com; IBC after the Impact COVID-19
COVID-19 outbreak has caused confusion and industry stress for reasons beyond their control. India was closed on 25 March 2020 to battle COVID-19, leading to the chaos of daily business activities.
It is difficult to find an adequate number of resolution applicants for the rescue of corporate persons who may default on their debt obligations.
Distress is about because of an extraordinary situation and business entities are being forced into insolvency proceedings under the Legislation.
Defaults arising from an unprecedented event to be excluded for the reasons of insolvency proceedings under the Code.
Suspension of Insolvency and Bankruptcy Code, 2016 (IBC) has been extended for another 3 months. Hon’ble Finance Minister| Smt Nirmala Sitharaman announced that the insolvency and bankruptcy law will remain suspended till 31 March 2021 now.
Forced to help companies cope with the economic damage caused by the coronavirus pandemic and subsequent lockdowns, the suspension was initially planned to remain in place for 6 months from March 25, when the Center instituted a national lockdown to curb the spread of COVID-19.
It was extended for three more months later and was expected to come to an end on December 25 of this year. Defaults for a whole year from March 25 will not be liable to bankruptcy proceedings.
“When the lockdown was announced, there was constant engagement with industry. So many deadlines were postponed and many compliances relaxed.
Even the suspension of the IBC has been postponed even further from December 25, I think we have moved to saying that will be in abeyance till March 31, 2021,” Sitharaman said during a virtual interactive session with Bangalore Chamber of Industry and Commerce (BCIC).
“So, the entire year has had the IBC suspended, rightfully so because every industry has gone through major stress because of the pandemic and nobody could be drawn towards the insolvency process for problems that may have occurred during the pandemic,” she added.
For the very first Six months of Financial Year 21, only 42 companies undergoing the Corporate Insolvency Resolution Process (CIRP) are seeing a resolution plan approved, yielding INR 12.6k crore as a return for financial creditors.
Ms. Sitharaman has said that the government had ensured that small, medium and large companies had ample liquidity to carry out business operations through the emergency credit line guarantee scheme, as well as preventing bankruptcies due to the IBC suspension.
Professionals, however, also suggested that further intervention could be required to support the strained corporate balance sheets.
Some of the companies under stress would find it difficult to fit into the One Time Restructuring option offered by the Reserve Bank of India. The IBC may have helped these companies to restructure their liabilities and revive them
New insolvency cases that will be launched in Financial Year 22, when the suspension of new insolvency proceedings has been lifted, are unlikely to be resolved in the same fiscal manner, given the usual average time period seen for CIRPs to complete a resolution plan, which is very large ( Presently at 433 days).
As a result, ICRA expects both FY21 and FY22 to see comparatively low CIRP results for lenders compared to previous years.
Nakshatra World, a subsidiary of Gitanjali Gems, one of the group firms pushed by fugitive businessman Mehul Choksi, has been ordered to be liquidated by the Mumbai chapter of the National Company Law Tribunal (NCLT).
The decision was made in response to an insolvency petition filed by ICICI Bank against the company two years ago, which was also reportedly implicated in a money laundering case reported to the Punjab National Bank. Santanu Ray, a partner at Delhi-based AAA Insolvency Professionals LLP, was named liquidator by the court.
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