The ordinance issued today effective immediately, suspends initiation of any fresh proceedings om insolvency for period of 6months, this ordinance acts as a shield to the companies.
Section 7, 8 and 9 of IBC 2016 provides for insolvency filing by financial creditor, operational creditor and cooperate debtor. But The ordinance titled Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020, inserts Section 10A restricts all the insolvency filing for 6 months.
“Notwithstanding anything contained in Sections 7, 9 and 10, no application for initiation of corporate insolvency resolution process of a corporate debtor shall be filed, for any default arising on or after 25th March, 2020.”
The ordinance suspends these sections on grounds that
the pandemic has created uncertainty and stress for business for reasons beyond their control
the nationwide lockdown has added to disruption of normal business operations
in such circumstances it would be difficult to find adequate number of resolution applicants for a distressed/defaulting business.
The 6 months has been considered as ti will go parallel with the loan moratorium that banking and non banking institutions have extended.
The ordinance also makes it clear that the suspension won’t apply for defaults committed prior to March 25, 2020. It has also said that resolution professionals will be barred from initiating fraudulent trading or wrongful trading application against directors of companies where the IBC process is suspended.
Lawcutor 