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IBC moratorium extension unlikely  

10th March, 2021 Economy

Context: The government is not planning to extend the moratorium on new insolvency proceedings under the Insolvency and Bankruptcy Code (IBC), which is set to expire on March 24.

 

Details:

  • The government, in June, granted a moratorium on the initiation of insolvency proceedings for any defaults occurring March 25 onwards for a period of 12 months — leading to only 161 insolvency petitions that were related to earlier defaults being admitted during the first half of this fiscal, compared to 889 cases in the year-ago period.
  • The government had also raised the threshold for initiation of insolvency proceedings to Rs 1 crore from Rs 1 lakh to prevent small companies from facing insolvency proceedings.
  • The official also said that a proposal to include pre-packs as a resolution mechanism under the IBC was at an advanced stage and was undergoing inter-ministerial discussions.
  • A pre-pack mechanism allows creditors to enter into an agreement with an investor directly instead of opening up a public bidding process.

About IBC:

The Insolvency and Bankruptcy Code, 2016 (IBC) is the bankruptcy law of India which seeks to consolidate the existing framework by creating a single law for insolvency and bankruptcy.

Insolvency Resolution:

  • The Code outlines separate insolvency resolution processes for individuals, companies and partnership firms. The process may be initiated by either the debtor or the creditors.
  • For companies, the process will have to be completed in 180 days, which may be extended by 90 days, if a majority of the creditors agree.
  • For start ups, small companies and other companies (with assets less than Rs. 1 crore), the resolution process would be completed within 90 days of initiation of request which may be extended by 45 days.
  • The Insolvency and Bankruptcy Code (Amendment) Act, 2019 has increased the mandatory upper Time limit of 330 days including time spent in legal process to complete the resolution process.

Insolvency regulator:

  • The Code establishes the Insolvency and Bankruptcy Board of India, to oversee the insolvency proceedings in the country and regulate the entities registered under it.
  • The Board will have 10 members, including representatives from the Ministries of Finance and Law, and the Reserve Bank of India.

Insolvency professionals:

  • The insolvency process will be managed by licensed professionals. These professionals will also control the assets of the debtor during the insolvency process.

Bankruptcy and Insolvency Adjudicator:

  • The Code proposes two separate tribunals to oversee the process of insolvency resolution, for individuals and companies: (i) the National Company Law Tribunal for Companies and Limited Liability Partnership firms; and (ii) the Debt Recovery Tribunal for individuals and partnerships.

 

https://indianexpress.com/article/business/ibc-moratorium-extension-unlikely-7221584/