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Govt to amend IBC law to suspend up to 1 year provisions that trigger fresh insolvency proceedings

24 Apr 2020 Evaluate

In a major relief for corporate borrowers hit hard by the coronavirus pandemic, the government has decided to amend the insolvency law to suspend up to one year provisions that trigger insolvency proceedings against defaulters. The amendments to the IBC (Insolvency and Bankruptcy Code) would pave the way for banks to restructure loans. An ordinance would be promulgated to suspend three sections of IBC for up to one year and a decision in this regard was taken by the Union Cabinet.

Section 7, 9 and 10 of the IBC would be suspended for six months and the suspension time can be extended up to one year. An enabling provision with respect to extending the time would be part of the ordinance. Suspension of these provisions could be extended up to one year based on the economic situation going forward. The effective date of the amendments coming into force would be the date of promulgation of the ordinance.

Section 7 and 9 pertain to initiation of corporate insolvency proceedings by a financial creditor and an operational creditor, respectively. Section 10 relates to filing an application for insolvency resolution by a corporate. The coronavirus outbreak and the nationwide lockdown to curb spreading of infections have significantly impacted economic activities and the latest decision in a way provides more leeway for corporate borrowers in repaying their loans.

As per existing norms, if a payment default exceeds 90 days then the lender concerned has to refer the account for resolution under IBC or any other mechanism permitted by the Reserve Bank of India (RBI). The lender does not have the option to restructure the loan. Currently, the Reserve Bank of India (RBI) norms prohibit restructuring of loans and resolution has to be done under IBC.

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