By - Aarushi Saxena, Associate at Qui Prior Law Associates
Insolvency and Bankruptcy Code, 2016 was enacted to consolidate and amend the
laws relating to reorganization and insolvency resolution of corporate persons,
partnership firms and individuals in a time-bound manner for maximization of
value of assets of such persons, to promote entrepreneurship, and availability
of credit and balance the interests of all the stakeholders.
Previously, the threshold limit for filing of an insolvency petition under the Insolvency and Bankruptcy Code, 2016 (“Code”) was increased from Rs 1 Lakh to Rs 1 Crore, on 24th March 2020. Further, Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) (Third Amendment) Regulations, 2020 introduced Regulation 40C (Special Provision Relating to Time-Line) providing for exemption of lockdown period in the wake of COVID-19 in relation to the timelines prescribed under corporate insolvency resolution process, on 29th March 2020.
Finally, on 5th June 2020, the President signed the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020 (“Ordinance”) to suspend the provisions of Sections 7, 9 & 10 of the Code. The primary objective behind the Ordinance is also to protect the interest of debtors who have experienced severe economic distress from being pushed into insolvency and to exclude the defaults arsing on account of these unprecedented circumstances.
Sections 7, 9 and 10 of the Insolvency and Bankruptcy Code, 2016 provide for insolvency filings by financial creditors, operational creditors and the corporate debtor itself.
Key features of the amending Ordinance:
The Ordinance is silent with respect to relaxations for MSMEs. Survival of MSME’s being one of the greatest concerns in the current situation and government repeatedly talking about ways and means to protect them, it was anticipated that the Ordinance will come out with the Special Insolvency Framework for MSMEs by way of the amendment under Section 240A of the Code.
Keeping in mind the core object of the Code to balance the interest of all stakeholders, it is expected that the NCLT and legislature will in due course resolve the impending ambiguities which surface due to this Ordinance, such as determination of default date, etc., with more clarity.