Ram Nath Kovind, the president of India, on Friday, implemented an ordinance to amend Insolvency and Bankruptcy Code (IBC) to stop fresh insolvency proceedings for up to one year due to defaults because of the COVID19 outbreak.
According to the ordinance, there will be no initiation of corporate insolvency resolution process of a corporate debtor that filed for any default arising on or after 25th March 2020 for a period of six months, not exceeding one year from such date.
Sections 7, 9, and 10 affect the initiation of the insolvency proceedings by operational and financial creditors and company debtors, and therefore the insolvency proceedings filed for default before March 25, 2020, will be taken into consideration.
The central government has also introduced a sub-section – 10A – in the IBC. This sub-section declares the relaxation. Moreover, Section 66 of the IBC provides some relief to the firms. This section says: “If during the company insolvency resolution process or a liquidation process, it’s found that any business of the company debtor has been carried on with intent to defraud creditors of the company debtor or for any fraudulent purpose, the adjudicating authority (NCLT) may on the appliance of the resolution professional pass an order that any persons who were knowingly parties to the carrying on of the business in such manner shall be susceptible to make such contributions to the assets of the company debtor as it may deem fit.”
Further, the ordinance also declared that there will be a sub-section that will be inserted after Section 66 of the IBC as: “Notwithstanding anything contained in this Section, no application shall be filed by a resolution professional under sub-section (2) in respect of such default against which initiation of the corporate insolvency resolution process is suspended as per Section 10-A.”