With the COVID-19 epidemic expanding into a crisis affecting every household, enterprise, industry, village, and city and generating unparalleled hardship, the year 2020 has underlined the role of uncertainty in the global economy specially in Industrial cities like Faridabad. Pandemic-related insolvencies were avoided because of preventive and prompt steps adopted under the Insolvency and Bankruptcy Code, 2016 (Code). As a result, during the crisis, this has endeavoured to minimize the loss of real assets and the resulting financial sector suffering.
When lockdown was implemented last year in march 2020, the government ordered to stop new insolvency proceedings for a further six months The operation of the Insolvency and Bankruptcy Code was halted by Covid-19 since filings under the code were suspended on March 25, 2020. As of July 31, 2020, the NCLAT has 19,844 cases outstanding, with 12,438 of them relating to the Insolvency and Bankruptcy Code. Approximately 3,000 cases were being liquidated and resolved, with another 9,000 cases awaiting entry.
This has sparked a heated debate about whether the Code’s market-driven mechanism should be abandoned, particularly as the market may witness an increase in the number of enterprises unable to service their obligations and hence unsustainable. It’s also true that financial hardship affects practically all enterprises, therefore the market may be unable to find rescuers for these distressed enterprises, forcing them to go bankrupt.
The Bankruptcy and Bankruptcy Board of India is responsible for overseeing and regulating insolvency processes in India. It is run by licensed specialists who will be in charge of the debtor’s assets during the insolvency process.
Delays in the resolution of IBC proceedings are hindering banks’ and financial institutions’ efforts to recover non-performing assets.
Insolvency procedures under the Insolvency and Bankruptcy Code, 2016 cannot be commenced based on defaults that happened between March 25, 2020, and March 25, 2021. Even for defaults that happened earlier in this period, the government announced that insolvency procedures under the IBC could not be pursued unless there was a default of at least INR 1 cr. which was earlier INR 1 lakh.
Recommencement Of Insolvency Proceedings
On March 25, 2021, the suspension period for the initiation of IBC actions came to an end. While there was some confusion about whether insolvency proceedings under the IBC could be started for defaults that occurred during the suspension period and continued after March 25, 2021, there was a belief that IBC activity would increase at least due to the resumption of physical hearings by the NCLT. The evolution of the law on concerns like limitation periods, the primacy of the committee of creditors’ commercial wisdom under the IBC, and the binding nature of a resolution plan over the last year resolved certain major problems that had been waiting for resolution. The government was expected to intervene to make it easier to get resolution plan approvals, provide more guidance on resolution plan execution, and establish the long-awaited group insolvency and cross-border bankruptcy law. With more certainty about the law, there is also a belief that, over time, settlement under the IBC would become less time-consuming.
The government also introduced a special pre-packaged insolvency resolution process earlier this year to deal specifically with the distress of MSMEs. MSME debtors who have committed defaults of at least INR 10 lakh are eligible for the PPIRP and may negotiate a “base plan” with their creditors under this new regime.
However, due to a new wave of COVID-19 infections, activity in the IBC and debt recovery space may take a different turn. Because of the human cost of this new COVID-19 wave, stakeholders may be unable to resume commercial activity, including restructuring activity, both within and outside IBC until infection rates decrease. Given this, emergency operational measures should be implemented to relax timelines for ongoing IBC insolvency proceedings. This will prevent companies from being forced into liquidation and actors from being penalised for being unable to carry out activities due to state lockdowns. Restructuring activities, including those carried out under the IBC, should not be completely halted. Instead, more emphasis should be placed on collaborative restructuring. Participants should be ready to fully utilize the new PPIRP framework. Even if a standard CIRP is launched, changes to Section 29A, which prohibits pre-existing promoters and management from presenting resolution plans, should be considered. The RBI could consider easing some asset categorisation rules for such restructuring in the IBC to give lenders more confidence in restructuring with current promoters. COVID-19 has an impact on domestic industries and businesses, but international economic activity is picking up as vaccination rates grow. As a result, greater foreign investment should be enticed, especially to decrease misery.
The government should also make certain that the benefits anticipated by the industry in the growth scenario a few months ago are not overlooked. For example, platforms to expedite the receipt of government approvals for plan implementation should be established, and legislation to address cross-border and group insolvency issues should be enacted. It should also continue to invest in building the capacity of NCLTs, not just by adding benches, but also by improving their virtual hearing and case management tools.
In case of any doubts in matter pertaining to Insolvency & Bankruptcy in Faridabad you can contact –
Advocate Sunil Kumar Bakshi
Office – 2043/16 Faridabad – 121002, Near Jain Mandir
Also At – Chamber No.272, District & Sessions Court, Faridabad.
Mobile – +91-9873750515, 9811680103
Website – www.bakshiandassociates.com
