Insolvency and Bankruptcy Code suspension to remain in force till March 31, 2021
BusinessToday.In December 22, 2020
The suspension of Insolvency and Bankruptcy Code (IBC) has been extended for another three month. The bankruptcy law will remain suspended till March 31, 2021 now, Finance Minister Nirmala Sitharaman said on Monday.
Enforced to help businesses cope with the economic disruptions caused by the coronavirus pandemic and subsequent lockdowns, the suspension was originally scheduled to remain in effect for six months from March 25, when Centre imposed a nationwide lockdown to curb the spread of COVID-19. It was later extended for three more months and was supposed to come to an end on December 25 this year. Now defaults for a whole year since March 25 will not be subject to insolvency proceedings.
"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," Sitharaman said during a virtual interactive session with Bangalore Chamber of Industry and Commerce (BCIC).
"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 added.
The Ministry of Finance is yet to officially announce this extension, though.
On the back of the suspension, insolvency cases had dropped 85 per cent in September quarter. Moreover, in a report earlier this month, ratings agency ICRA had projected that financial creditors may realise just Rs 60,000-65,000 crore in the current fiscal through successful resolution plans from the IBC, as compared to about Rs 1 lakh crore in the last financial year (FY20), registering a decline of up to 40 per cent.
For the first six months of FY21, only 42 companies undergoing a corporate insolvency resolution process (CIRP) have seen a resolution plan being approved, yielding Rs 12,600 crore as recovery for financial creditors.
New insolvency proceedings that will be initiated in FY22, once the suspension on fresh insolvency proceedings is lifted, are unlikely to get resolved in the same fiscal, given the typical average time-period seen for CIRPs to conclude with a resolution plan is quite high (currently at 433 days). Thus, ICRA expects both FY21 and FY22 to see relatively lower realisations from CIRPs for lenders compared to the preceding years.