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Latest IBC reforms announced by the FM

Akansha Rathi 
on 19 May 2020

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The reforms with respect to IBC have been announced by the Finance Minister on May 17, 2020, as policy measures.

These reforms are:

- Suspension of initiation of insolvency proceedings up to one year depending upon the pandemic situation.However, the start date of the one-year period is not clear which may be clarified later on by way of an ordinance. The fate of insolvency applications pending adjudication or those which have been filed but not been heard is also uncertain.

-The suspension will cover all corporate insolvency filings, including under Section 7 (by financial creditors), Section 9 (by operational creditors) and Section 10 (by corporate debtors). The need for suspending fresh insolvency filings for up to one year is not clear without clarity on the defaults which are covered in such suspension since even pre-existing defaults and accounts that are already NPAs will get covered. Suspension of Section 10 Proceedings (Voluntary) would lead to no possibility of formal restructuring and in those cases, Sections 230-232 of the Companies Act, 2013 will need to be resorted to in case of default situations.

-Empowering Central Government to exclude COVID 19 related debt from the definition of 'default' under the IBC for the purpose of triggering insolvency proceedings.

-This announcement is not qualified by any timeline, i.e. how long can such default continue before insolvency proceedings are initiated based on it. It is also not clear what exactly 'COVID 19 related debt' means.
 
-Special insolvency resolution framework for MSMEs to be notified soon- On March 24th 2020, the monetary limit for initiating insolvency proceedings was increased to Rs. 1 crore.

Now, a special insolvency resolution framework for MSMEs under Section 240A of the IBC will be notified to address issues that are peculiar to MSMEs.


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