The Parliament on Monday passed a bill that temporarily suspends initiation of corporate insolvency resolution process under the IBC, for a period not exceeding one year from March 25, to provide relief to companies affected by COVID-19 to recover from the financial stress.
The Lok Sabha passed the Insolvency and Bankruptcy Code (Second Amendment) Bill 2020 after a reply by Finance and Corporate Affairs Minister Nirmala Sitharaman. The bill had earlier been passed by the Rajya Sabha and will replace an ordinance brought by the government.
The benefit of the suspension will be available to all defaults of the corporate debtor that occur from March 25, 2020 till the end of the period of suspension.
Sitharaman said the government had to prevent any company which is experiencing stress because of COVID-19 getting or being pushed into insolvency proceedings and an ordinance was brought.
"The dimension and scale of the pandemic was obvious. So, we had to come up with an ordinance which clearly suspended the application of three sections 7, 9 and 10 of the Insolvency and Bankruptcy Code. We had to prevent any company which is experiencing stress because of COVID-19 getting or being pushed into insolvency proceedings. Therefore, we had to suspend these three sections," she said.
"Insolvency proceedings which could be triggered for reasons prior to March 2020, we wanted to exclude. Therefore, the commencement itself was from March 25, 2020. We gave ourselves first six months with a provision in the Act itself saying extendable," she said.
The minister said countries are working to have some kind of an immediate response, temporary response and then making sure when companies come out of stress how they would handle it.
Sitharaman said the whole approach was to provide immediate help with some relief. She said there could be a kind of resolution mechanism for those who are not able to survive and handholding is inadequate in particular instances.