Insolvency regulator IBBI on Sunday stated that the 21-day lockdown imposed by the Centre will not count towards timelines in the corporate insolvency resolution process (CIRP) under the Insolvency and Bankruptcy Code (IBC). The IBC prescribes that the CIRP for companies be completed within 330 days. including time taken for litigation.
“… the period of lockdown imposed by the Central Government in the wake of COVID-19 outbreak shall not be counted for the purposes of the timeline for any activity that could not be completed due to such lockdown, in relation to a corporate insolvency resolution process,” said a notification by the Insolvency and Bankruptcy Board of India (IBBI).
Experts said the move was welcome as many insolvency cases had come to a standstill during the lockdown.”(It) is a welcome move as many CIRP proceedings have come to standstill due to the lockdown,” said Daizy Chawla, managing partner at law firm Singh and Associates, adding that if the provision had not been notified there would have been a “flood of litigation to seek exclusion” of this time period once the lockdown is lifted.
Manoj K Singh, founding partner of Singh and Associates, however, said more steps were needed to protect businesses undergoing CIRP. He said if companies that were previously not under stress needed relief from the Reserve Bank of India in terms of a moratorium on payments for three months, then businesses undergoing insolvency proceedings also need interim financing to preserve business value.
“Some kind of financial impetus is required for companies under resolution, so that business can be preserved and so that they can have some interested buyers when the economy starts getting momentum again,” he said, adding that the Centre may choose some criteria to ensure that only business which have ongoing operations are given this interim finance. He noted that if this was not done, companies undergoing CIRP would not remain going concerns.
The government, last week, increased the default threshold for initiation of insolvency proceedings to Rs 1 crore from Rs 1 lakh, to protect small enterprises from being dragged into insolvency proceedings due to issues caused by the coronavirus outbreak.
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