The government has decided to extend the suspension of the Insolvency and Bankruptcy Code (IBC) till March 31, 2021, to help businesses cope with the lingering difficulties posed by the COVID-19 pandemic, Union Finance Minister Nirmala Sitharaman said on Monday.
The Minister’s statement settles a major uncertainty facing businesses since the present government order to keep the insolvency code in abeyance was due to expire on December 25.
All defaults arising on or after March 25, when the national lockdown was imposed to curb the pandemic, will effectively remain out of the insolvency net for a full year, Ms. Sitharaman said.
“When the lockdown was announced, there was constant engagement with industry. So many deadlines were postponed and many compliances relaxed. Even the suspension of the IBC has been postponed even further from December 25, I think we have moved to saying that will be in abeyance till March 31, 2021,” the Minister said at an interaction with the Bangalore Chamber of Industry and Commerce on Monday evening.
“So, the entire year has had the IBC suspended, rightfully so because every industry has gone through major stress because of the pandemic and nobody could be drawn towards the insolvency process for problems that may have occurred during the pandemic,” she explained.
Ms. Sitharaman said the government has ensured that small, medium and big companies got adequate liquidity to carry on business operations through the emergency credit line guarantee scheme, even as they avoided bankruptcy cases due to the IBC suspension.
Experts, however, said more action may be needed to help stressed corporate balance sheets.
“Many stressed corporates will find it difficult to fit into the One Time Restructuring option provided by the Reserve Bank of India. The IBC could have allowed such corporates to restructure liabilities and revive,” said Rajiv Chandak, partner at Deloitte India.
