Insolvency and Bankruptcy Ordinance 2020

Indian Insolvency Law responds to the COVID-19 Pandemic- Part-II

Introduction

On June 5, 2020, the President of India promulgated the Insolvency and Bankruptcy (Amendment) Ordinance, 2020 (“Ordinance”), in furtherance to the economic measures announced by the Ministry of Finance[1] to support Indian businesses impacted by the outbreak of the Covid-19 pandemic. The Ordinance has introduced the following amendments to the Insolvency and Bankruptcy Code, 2016 (“IBC”) (effective immediately):

  • Section 10A has been inserted in the IBC, restricting filing of any application for initiation of the corporate insolvency resolution process (“CIRP”) of a corporate debtor (being a company or a limited liability partnership) for any default[2] arising after March 25, 2020, for a period of six months or such further period, not exceeding one year from March 25, 2020, as may be notified in this behalf (such period being “Specified Period”).[3]

Further, a proviso has been inserted in section 10A to specify that no application shall ever be filed for initiation of CIRP of a corporate debtor for the said default occurring during the Specified Period i.e. CIRP can never be initiated on the basis of a default during the Specified Period, even if the default is continuing after having occurred during the Specified Period.

  • A non-obstante clause has been inserted in to section 66 (Fraudulent trading or wrongful trading) of the IBC to give protection to the directors of a corporate debtor. Accordingly, no application can be filed by a resolution professional under sub-section 66(2), in respect of such defaults against which initiation of CIRP is suspended under Section 10A of the IBC.[4]


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