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In these days of COVID-19 outbreak, all over the world everyone is seeing the negative impact of this pandemic i.e. global economic slowdown, job losses, loss of human lives etc. These impacts are measured and witnessed through various surveys and reports by respective authorities and governments.

If situation continues like this, it would impact commerce and industry with no demand, no production and no supply. As a result, risk of financial leverage would become high and non-performing assets would also increase drastically. Consequently, lenders would approach to recover their dues at discounted rates. There would be more IBC cases and also workload would be increased for Insolvency Professionals. However, this situation would not be beneficial for anyone be it from economy point of view or from Industry point of view or from Insolvency Professional point of view, because if economy is under stressed then industries will also be under performed and corporate professionals would not get fair professional fees for their services rendering to industry members.

So, it was expected from the government to take major policy decisions to fight this situation and rescue the industries and economy. Therefore, since the announcement of lockdown on 24th March, 2020, Government has been taking various reforms and economic packages to rescue the economy.

The IBC Ordinance 2020

Major IBC Reforms Due to Covid-19:

On 24th March, 2020, the Union Finance & Corporate Affairs Minister, Smt. Nirmala Sitharaman, had taken a press conference just before the announcement of the nationwide lockdown, wherein various decisions to combat the COVID-19 impact were laid down, such as increasing the threshold of default from Rs. 1 lakh to Rs. 1 crore for the initiation of insolvency and resolution process against companies under section 4 of the Insolvency and Bankruptcy Code, 2016 (the "IBC, 2016/Code"). Government also subsequently, notified The Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020, on 5th June, 2020 and introduced a new section 10A into the Code, to suspend filing of applications filed by creditors or companies under Section 7, Section 9 and Section10 of the IBC, 2016 for the defaults occurring on or after 25th March, 2020 for six (6) months or such further period, not exceeding one year from such date, as may be notified further, in order to stop companies into being forced into insolvency during such trying times faced worldwide.

Suspension of Insolvency Proceedings- Impact and Opportunities for IPs

Due to these amendments in IBC, as all sectors are facing job cuts, Insolvency Professionals also feel that it would be tough time for them. No new cases will be accepted by NCLT during this suspension time for six months, which may be extended by one year through further notification. Also, after this suspension period due to the increasing of threshold limit of default to Rs 1 crore, it seems that enthusiasm behind applicability of IBC will be diluting due to these amendments and prospective Insolvency Professional will get discouraged to plan their career in IBC, which might be directly affecting authorities notified under IBC such as IBBI, IPA(such as IIIPI, ICSI IIP & IPA ICAI, IU, NCLT, NCLAT). Existing Insolvency Professionals will get engaged in existing ongoing cases during this suspension period but they will also not get the expected new clients due to this. Everyone thinks Insolvency professional practice will get affected due to this amendment in IBC for this period of suspension, which might discourage to plan their career in IBC.

But this is not the real picture. As we know that IBC is preventive law, which first try to revive the business through the resolution plan and if not succeeded, then last way out to realisation of dues is liquidation. The concept behind the IBC is time bound steps to be taken for resolution process, not to go for liquidation. Liquidation have its own disadvantages as follows:

  • The liquidation procedure, once started, cannot be stopped. This means that the business must stop trading and the assets sold out to realise debts.
  • People who work for the company, as well as those who supply the business, will lose their jobs or lose their customers respectively.
  • When a business is liquidated, part of the liquidation procedure is an investigation into the conduct of the directors and the factors which led to the liquidation. Directors who have behaved improperly, may find themselves subject to disqualification from acting as a director.
  • Most of the times, creditors get discounted claims/haircuts in liquidation process.

These are some of the main disadvantages which are irreversible, so it is always better to get chance to avoid such ultimate step i.e liquidation. IBC gives hope of revival of corporate debtor from financial stress, by resolution plan recommended by qualified Resolution Professional.


Redefine new Role of Insolvency Professional

The takeaway from this analysis is that there is a need to redefine new role of Insolvency Professional and for this, IBBI & IPAs have to market new role of Insolvency Professional and spread awareness of hiring Insolvency Professional well in advance before getting too late or waiting to attract applicability of IBC. If a lender cannot initiate insolvency, it necessarily means that the loan needs to be bilaterally restructured outside of IBC.

Let’s take a simple relatable example, suppose a person has initial symptoms of cancer but he ignored it due to carelessness and ignorance; and at the later stage when he felt more sickness then he approached to Oncologist. At this stage, chances of revival are lesser than the time when he would have approached at initial stage. The same is relatable with financial distressed organisation. It should approach to Insolvency Professional as early detection of insolvency to get assistance when it realised that its borrowing are getting enhanced and there are likely chances that it will not able to pay to its creditors. If it approaches Insolvency Professional at early stage of financial distress suo moto then without waiting the attraction of IBC, the chances of revival would be better, also without damaging public image of the organisation. We know that Insolvency Professionals are highly skilled and competent subject matter experts, they know industry very well- how it operates, what would be optimal financial structure- and with his vast experience, he can identify the problems and resolve it on timely manner before going into the insolvency crisis.

Way Forward

Insolvency Professional firms will not much get affected because actually they are experienced working professionals (CA/CS/CMA/Lawyers) and they can give consultancy to its clients in another capacity. But during this suspension period of six months (which might be extended up to one year), profession of Insolvency Professional might not be as appealing and promising as it had been when IBC came into effect.

So here, it is the duty of IBBI & IPAs to redefine the new role of Insolvency Professional profession and market the expertise of its Insolvency Professionals and spread the awareness among the distressed organisations to take consultancy without waiting the attraction of IBC. This can be done by requesting the government to recognise the concept to “Pre-Packaged Insolvency (Pre-Pack)”.


Pre-packaged insolvency (a pre-pack) is one such novel resolution mechanism which has been used extensively in the United States and the United Kingdom since the 1980s. A pre-pack is a pre-planned process in which a financially distressed company and its creditors reach an agreement with a buyer for its sale prior to initiating insolvency proceedings. Till then IBC recognise Pre-Pack, IBBI, IPAs and also IPs may promote the expertise of Insolvency Professional, which can be utilised before triggering IBC and make it mandatory to appoint Insolvency Professional to take out distressed companies well in advance. On the other hand, IBBI & IPs can also encourage its Insolvency Professionals to skilled up in required areas such as forensic audit, due diligence, valuation etc.

This is How IBBI & IPAs through above-mentioned acts help to maintain the same enthusiasm for Insolvency Professional as career option as it was in the beginning of IBC when it was introduced in 2016 and henceforth, turn this challenging time to opportunity so as to enhance the role of Insolvency Professional.

After all, a true professional is one who turn the challenges into opportunities.


Published by

Ali Basha
Category Corporate Law   Report

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