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Govt raises insolvency threshold to Rs 1 crore to help small companies

Sitharaman also announced that the government may suspend initiation of insolvency proceedings against companies altogether for six months, if the government finds that the situation does not improve by April 30.

insolvency and bankruptcy code, insolvency and bankruptcy code 2016, insolvency and bankruptcy code amendment act 2019, insolvency and bankruptcy code impact, ibc 2016 FM Nirmala Sitharaman. (PTI/File)

Finance and Corporate Affairs Minister Nirmala Sitharaman on Tuesday announced an increase in the threshold for initiation of corporate insolvency from Rs 1 lakh to Rs 1 crore to prevent small businesses from being dragged into insolvency beside a number of other measures to ease the compliance burden on companies during the coronavirus outbreak.

Sitharaman also announced that the government may suspend initiation of insolvency proceedings against companies altogether for six months, if the government finds that the situation does not improve by April 30. Sitharaman also announced a moratorium on mandatory filings with the Corporate Affairs Ministry’s MCA-21 portal, removing additional fees for late filing during this period.

“We are raising the threshold of default to Rs 1 crore, so that we can prevent triggering of insolvency proceedings for MSMES,”said Sitharaman.

Experts welcomed the move stating that the increase in the threshold for initiation of insolvency proceedings would provide much needed protection of Medium, Small and Micro Enterprises (MSMEs).

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Sitharaman also announced the deferment of the implementation of the new auditing standard to FY21.

Sanjeev Singhal, partner at accounting firm SR Batliboi and Co, said the move would allow companies time to address immediate business needs and reduce the burden on companies and professionals in the current lockdown situation.

Singhal also said that industry and audit professionals were looking forward to accounting and auditing guidance from the ICAI on a number of issues “relating to physical verification of inventory, fixed assets, balance confirmations, fair value measurements, expected credit losses, going concern and impairment” in the current scenario. Sitharaman also announced that companies would now have time till June 30 to create a deposit reserve of 20% of deposits set to mature in FY21 and to invest 15% of the value of debentures set to mature in the FY21 prescribed government instruments. Ordinarily companies have to meet these requirements by April 30.

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Ankit Singhi, partner at Corporate Professionals, said the move was necessary as many companies did not have the funds to set up the reserve or make investments at this time and added that the government may have to extend the deadline or even remove the requirement for the fiscal if the current situation persists.

Sitharaman announced a 60 day relaxation in the rule requiring that board meetings be held once every 120 days for the next two quarters. Sitharaman also said that companies would also be exempt from the requirement under the Companies Act that at least one director be in residency in the country for at least 182 days in the year.

First published on: 25-03-2020 at 03:25 IST
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