Changes Made to IBC Due to COVID-19

Last Updated at: May 27, 2020
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Changes Made to IBC Due to COVID-19

The lockdown announced in lieu of the COVID-19 pandemic has affected the usual business activities in all sectors of the economy. The important feature of the Insolvency and Bankruptcy Code (The Code) is that it provides for timely disposal of cases with each step having its own definite timeline. This lockdown has made it impossible for all the stakeholders involved in the process to participate effectively. Further, to perform their respective functions within the timeline as prescribed by the Code and the Regulations. 

In light of the current situation, a series of amendments are there to the Code and the Regulations. The amendments introduced regulatory relaxations for the stakeholders and certain protection for the businesses affected by the economic slowdown caused by COVID-19. In addition to the changes in policy measures, the Judicial and Quasi-Judicial Authorities also took note. It issues orders providing for relief measures for the entities affected by COVID-19.

KEY CHANGES

  • Increase in threshold from Rs. One Lakh to Rs. One Crore
  • Exclusion of Lockdown period in computing timeline under CIRP & Liquidation regulations. 
  • Exclusion of Lockdown period in computing the overall period of 330 days for completing CIRP
  • Suspension of insolvency proceedings for a period of one year
  • Exclusion of pandemic related debts from the purview of Insolvency and Bankruptcy Code.

INCREASE IN THRESHOLD FOR INITIATING CIRP

The Code prescribes a threshold amount to initiate insolvency proceedings against a corporate debtor. Only if the debt amount in default is more than the prescribed threshold, a creditor can initiate CIRP.   Earlier, the threshold amount was at Rupees One Lakh. Most of the economic activities came to halt upon the announcement of lockdown. The corporate debtors were unable to fulfill their financial obligations. And thereby defaulted in the repayment of the amount due to financial/operational creditors. Considering the special circumstances leading to default in debt amount and in order to avoid unnecessary litigations, the Government on 24th March 2020 has increased the threshold amount to Rupees One Crore. This amendment aims to protect the Micro. Small and Medium Enterprises from going extinct and provides a safer space for such entities to breathe and get back on their feet on the post-pandemic situation.

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WAIVER OF LIMITATION PERIOD

On 23rd March 2020, the Supreme Court of India passed an order extending the limitation period under all general and special laws, whether condonable or not, with effect from 15th March 2020. The effect being, the limitation period stops running during this lockdown period and will resume only after the date as will be notified by the Supreme Court. So accordingly, the limitation period for initiating insolvency proceedings under the Code also extends

CIRP & LIQUIDATION REGULATIONS

The interesting feature of the Code is that it provides for timely disposal of cases. The code prescribes that the entire process of CIRP, including the minimum period,  extensions consider and time consumption for litigation, must complete mandatorily within a period of 330 days. The use of the word “mandatorily” imposes a special duty upon the Adjudicating Authority to complete the process within 330 days. Among the overall period of 330 days, the minimum period to complete a CIRP is 180 days.

Within the minimum period of 180 days, each step in CIRP has its own timeline. As prescribed by regulation 40A of the CIRP regulations. For instance, once the CIRP is initiated and an interim Resolution Professional is appointed. Additionally, the public announcement has to be made within 3 days. Claims must be submitted within 14 days. Considering the difficulties that may arise in inviting claims, resolution plans, etc the regulation amends to include another provision. It states that the lockdown period will exclude in computing the timeline for the completion of CIRP. Hence the timeline will be calculated from the day when the lockdown is lifted. However, this amendment does not affect the overall period of 330 days provided under the Code.

LIQUIDATION REGULATIONS

 Also, the time limit provided for the Resolution professional/Interim Resolution Professional to file various forms provided under the regulation has been extended up to 30th October 2020. That is to say, penalties for non-filing of forms will not be triggered until after 30th October 2020.  

A similar provision has also an introduction in the Liquidation Regulations. Regulation 47 provides a detailed timeline for the completion of all the steps involved in the Liquidation process. The new amendment provides that the lockdown period will not have a calculation in computing the timeline for completion of the liquidation process. 

ORDERS BY NATIONAL COMPANY LAW APPELLATE TRIBUNAL (NCLAT)

After the order of the Supreme Court on 23rd March 2020, the NCLAT on 30th March 2020 passes an order. It states for all cases in which the CIPR that initiates or pending before NLCT or NCLAT, the period of lockdown will exclude in computing the overall period of 330 days that provides by the Code. Moreover, any interim order or stay passed by the NCLAT will remain in force until the next date of hearing. A combined reading of an amendment to CIRP Regulations and order of NCLAT provided that the entire process under the Code has been suspended until after the lockdown is lifted. 

UPCOMING CHANGES

In order to help the businesses to get back on their feet in the post-pandemic situation, the Government has suspended the initiation. It is of any fresh insolvency proceedings for a period of one year. This measure aims at protecting the businesses from dragging into tribunals at a time. When they are trying to repair the damages caused by the COVID-19. Also, the Government has proposed to exclude all debts related to COVID-19 from the ambit of “default” under the Code so that creditors cannot trigger insolvency proceedings for debts raised due to COVID-19. It has Detailed information with respect to the exclusion of debt related to pandemic and suspension of insolvency proceedings. For one year will be brought by way of the ordinance in the near future. 

 

 

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Changes Made to IBC Due to COVID-19

219

The lockdown announced in lieu of the COVID-19 pandemic has affected the usual business activities in all sectors of the economy. The important feature of the Insolvency and Bankruptcy Code (The Code) is that it provides for timely disposal of cases with each step having its own definite timeline. This lockdown has made it impossible for all the stakeholders involved in the process to participate effectively. Further, to perform their respective functions within the timeline as prescribed by the Code and the Regulations. 

In light of the current situation, a series of amendments are there to the Code and the Regulations. The amendments introduced regulatory relaxations for the stakeholders and certain protection for the businesses affected by the economic slowdown caused by COVID-19. In addition to the changes in policy measures, the Judicial and Quasi-Judicial Authorities also took note. It issues orders providing for relief measures for the entities affected by COVID-19.

KEY CHANGES

  • Increase in threshold from Rs. One Lakh to Rs. One Crore
  • Exclusion of Lockdown period in computing timeline under CIRP & Liquidation regulations. 
  • Exclusion of Lockdown period in computing the overall period of 330 days for completing CIRP
  • Suspension of insolvency proceedings for a period of one year
  • Exclusion of pandemic related debts from the purview of Insolvency and Bankruptcy Code.

INCREASE IN THRESHOLD FOR INITIATING CIRP

The Code prescribes a threshold amount to initiate insolvency proceedings against a corporate debtor. Only if the debt amount in default is more than the prescribed threshold, a creditor can initiate CIRP.   Earlier, the threshold amount was at Rupees One Lakh. Most of the economic activities came to halt upon the announcement of lockdown. The corporate debtors were unable to fulfill their financial obligations. And thereby defaulted in the repayment of the amount due to financial/operational creditors. Considering the special circumstances leading to default in debt amount and in order to avoid unnecessary litigations, the Government on 24th March 2020 has increased the threshold amount to Rupees One Crore. This amendment aims to protect the Micro. Small and Medium Enterprises from going extinct and provides a safer space for such entities to breathe and get back on their feet on the post-pandemic situation.

get Free Legal Advice

WAIVER OF LIMITATION PERIOD

On 23rd March 2020, the Supreme Court of India passed an order extending the limitation period under all general and special laws, whether condonable or not, with effect from 15th March 2020. The effect being, the limitation period stops running during this lockdown period and will resume only after the date as will be notified by the Supreme Court. So accordingly, the limitation period for initiating insolvency proceedings under the Code also extends

CIRP & LIQUIDATION REGULATIONS

The interesting feature of the Code is that it provides for timely disposal of cases. The code prescribes that the entire process of CIRP, including the minimum period,  extensions consider and time consumption for litigation, must complete mandatorily within a period of 330 days. The use of the word “mandatorily” imposes a special duty upon the Adjudicating Authority to complete the process within 330 days. Among the overall period of 330 days, the minimum period to complete a CIRP is 180 days.

Within the minimum period of 180 days, each step in CIRP has its own timeline. As prescribed by regulation 40A of the CIRP regulations. For instance, once the CIRP is initiated and an interim Resolution Professional is appointed. Additionally, the public announcement has to be made within 3 days. Claims must be submitted within 14 days. Considering the difficulties that may arise in inviting claims, resolution plans, etc the regulation amends to include another provision. It states that the lockdown period will exclude in computing the timeline for the completion of CIRP. Hence the timeline will be calculated from the day when the lockdown is lifted. However, this amendment does not affect the overall period of 330 days provided under the Code.

LIQUIDATION REGULATIONS

 Also, the time limit provided for the Resolution professional/Interim Resolution Professional to file various forms provided under the regulation has been extended up to 30th October 2020. That is to say, penalties for non-filing of forms will not be triggered until after 30th October 2020.  

A similar provision has also an introduction in the Liquidation Regulations. Regulation 47 provides a detailed timeline for the completion of all the steps involved in the Liquidation process. The new amendment provides that the lockdown period will not have a calculation in computing the timeline for completion of the liquidation process. 

ORDERS BY NATIONAL COMPANY LAW APPELLATE TRIBUNAL (NCLAT)

After the order of the Supreme Court on 23rd March 2020, the NCLAT on 30th March 2020 passes an order. It states for all cases in which the CIPR that initiates or pending before NLCT or NCLAT, the period of lockdown will exclude in computing the overall period of 330 days that provides by the Code. Moreover, any interim order or stay passed by the NCLAT will remain in force until the next date of hearing. A combined reading of an amendment to CIRP Regulations and order of NCLAT provided that the entire process under the Code has been suspended until after the lockdown is lifted. 

UPCOMING CHANGES

In order to help the businesses to get back on their feet in the post-pandemic situation, the Government has suspended the initiation. It is of any fresh insolvency proceedings for a period of one year. This measure aims at protecting the businesses from dragging into tribunals at a time. When they are trying to repair the damages caused by the COVID-19. Also, the Government has proposed to exclude all debts related to COVID-19 from the ambit of “default” under the Code so that creditors cannot trigger insolvency proceedings for debts raised due to COVID-19. It has Detailed information with respect to the exclusion of debt related to pandemic and suspension of insolvency proceedings. For one year will be brought by way of the ordinance in the near future. 

 

 

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