A STUDY ON THE IMPACT OF IBC, 2016 ON COVID-19: VED PRAKASH

 

One of the worse times that any country would have seen is the time that they are facing now and that is the current time of pandemic where so many people’s lives are at stake, the cases of positive person are on the surge and many are in fear that they might not also get infected or tested positive for this disease.  It is in this view that the government is taking as many measures as they can do to protect its citizens or people and one such bold or significant measure which is taken by our government or the government by other country is to lock down the country or state, however, this is not free from disadvantages as many business enterprises will start incurring losses especially Micro, small and medium enterprises (MSMEs) and these enterprises will not even be able to recover their losses easily as compared to big business firms, so it is in this regard government has announced various measures which can ease out the pressure and the burden that they are facing and thus some changes were made in the Insolvency and Bankruptcy Code, 2016.

Increasing Threshold Amount

The first measure which is made or announced by the government through the notification dated March 24, 2020, is in regard to increase threshold amount of default for filing a resolution process under IBC in case any insolvency happens on the part of the debtor, so the amount has been increased to Rs. 1,00,00,000 (Rupees one crore) from the earlier threshold of Rs. 1,00,000 (Rupees one lakh). This decision which has been made by amending the section 4 of IBC, 2016 will also have an impact on section 7, 9 and 10 of the code which talks about the filing of an application in case of insolvency[1]. It will lead to lower cases coming over the authorities and the MSMEs can now function freely without fear.

Exclusion of Lockdown Period from timeline period of 330 days

Another such measure announced is in regard to ease out the strict adherence of the timeline of 330 days for initiating the insolvency process and completing all the formalities related it. It has been done by the introducing a special provision Regulation 40-C in the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016[2] which excluded the lockdown period for completing the insolvency resolution process and states that the lockdown period will not be taken into account for calculating the timelines for the insolvency resolution process.

Suspension of section 7, 9 and 10 for one year

The government has also decided to suspend the section 7, 9 and 10 which deals with the corporate insolvency resolution process against a debtor, insolvency by an operational creditor, or by a corporate applicant[3]. It is definitely going to provide a sigh of relief to many small businesses as they would not have to be confronted with the insolvency process especially in this pandemic time where chances of going into liquidation are very high given the situation of lockdown in which everything is shut and very minimal economic activity is taking place.

Conclusion-

The various measures which have been introduced by the government undoubtedly have given a lot of advantages to the MSMEs in dealing with the issues arising from the pandemic and lockdown, however, it might also some opposite effect as well from the one expected by the government in the manner that the operation creditors who generally give debts to the small businesses are mostly companies so now they will think that if they give debts to them the chances of recovery might get difficult then they might not be willing to give them any aid and thus, it might altogether create a different impact. Another such issue which can be looked is the issue of the personal guarantors of debtors. Even if the initiation of insolvency proceedings against and the corporate debtor has been made difficult by the government but the interests of the personal guarantors of debtors have not been taken into account as the minimum amount of default for initiation of such proceeding against those guarantors still stands at Rupees one thousand[4] which simply indicates that the insolvency proceedings against them will surge and therefore their problems should also have been noticed by the government. As we know a poorly drafted law is the one which has a lot of ambiguity or interpretation in it or when it does not address all the issues related with that particular matter and thus the same can be attributed with the changes made in this Code in the manner that no such solutions have been given for those companies or businesses whose cases are pending as in the absence of any such specification they would have to go through the insolvency proceeding according to the previous limits[5] and thus, it will make the situation very complicated for them given the current situation of the pandemic. So, the onus will be on the courts to give a proper interpretation of those amendments or changes which has been made regarding whether the retrospective effect of it should apply or not and besides many other ambiguities, however, whatever the steps that have been taken by the government is a good move and should be welcomed as it will render many help and benefits to various businesses and the announcement of such measures was very much required in the present situation.

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[1] The Economic Times, Govt. raises default threshold to Rs 1 cr. for invoking insolvency proceedings against firms, https://economictimes.indiatimes.com/news/economy/policy/govt-raises-default-threshold-to-rs-1-cr-for-invoking-insolvency-proceedings-against-firms/articleshow/74796076.cms (last updated Mar. 24, 2020, 07:25 PM IST)

[2] Swarajya, Lockdown Period to be excluded from Timeframe of Liquidation under IBC for Bankrupt Companies, https://swarajyamag.com/insta/lockdown-period-to-be-excluded-from-timeframe-of-liquidation-under-ibc-for-bankrupt-companies (last updated Apr. 28, 2020, 02:27 PM)

[3] Livemint, Govt. to suspend insolvency provisions from IBC for up to 1 year,  https://www.livemint.com/news/india/govt-to-suspend-insolvency-provisions-from-ibc-for-up-to-1-year-report-11587651102690.html (last updated Apr. 23, 2020, 07:52 PM IST)

[4] SCC Online, Impact of Covid-19 on the Insolvency and Bankruptcy Code, 2016, https://www.scconline.com/blog/post/2020/04/17/impact-of-covid-19-on-the-insolvency-and-bankruptcy-code-2016/ (last visited 22.08.20)

[5]Mondaq, IBC: Retrospective Application of Revised Threshold- An Alternate Perspective, https://www.mondaq.com/india/insolvencybankruptcy/944102/ibc-retrospective-application-of-revised-threshold-an-alternate-perspective (last updated June, 05, 2020)