Suspension of some IBC provisions aimed at rescuing viable companies: Sahoo

Suspension of some IBC provisions aimed at rescuing viable companies: Sahoo

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The Insolvency and Bankruptcy Board of India (IBBI) on Friday said that some provisions were suspended due to the COVID-19 situation and there is no complete ban or prohibition on lenders with regard to proceedings for corporate defaults.


“We have done a very microscopic ‘keyhole surgery’ under the Insolvency and Bankruptcy Code (IBC) in light of the COVID-19 crisis, and no suspension, complete ban or prohibition is there,” chairperson said at an ASSOCHAM e-summit on



What was required, he said, was to have a well-calibrated middle path and suspend some of the elements.


The traditional model does not work at this point of time when every firm, industry, economy and the entire world is under stress, he said.


This called for experimentation that when these twin complementary remedies translated to two competing options, either suspend the operations of the code or let it continue to operate, he noted.


“If you suspend the operations of the code, you will fail to liquidate an unviable firm, this mistake can be rectified in the following quarter or year but the second option that you operate the in its normal form, this mistake can never be rectified,” Sahoo explained.


So, rescuing a viable firm is far more important than failing to liquidate an unviable firm during the current times, he said adding that both options have intended and unintended consequences.


He further said that experiencing stress for the first time only because of the COVID-19 pandemic and which did not have the stress earlier will be prevented from being forced into insolvency proceedings because of this unprecedented situation.


“There is a possibility that a company which never defaulted earlier defaults during COVID-19 on account of some fundamental reasons and not because of the pandemic, there could be such a rare case but if we get into such things we will simply lose years fighting legal battles, so let such rare cases have the benefit of doubt and move on,” said the chief.


On suspension of Section 10 of the IBC, he said it is a voluntary option.


Talking about the ordinance brought in Section 10A that prohibited filing of applications only for the purpose of Corporate Resolution Process (CRP), Sahoo said it did not change the definition of default and did not dissolve the obligations of the debtors.


No other laws were touched and even under the IBC every aspect relating to default remains untouched except that one cannot initiate CRP for a default arising on or after March 25 for a period of six months or such further period not exceeding one year from such date, Sahoo said.


Noting that insolvency is essentially an outcome of market forces, he said that insolvency law expects that the market should find its own solution.


“Of course, they need to be facilitated by the law, ecosystem, NCLT, and others, but essentially we believe that it is an economic problem and it has to be sorted by market participants. The law has to remain firmly grounded to the realities of the market and rescue the firms,” he added.


Talking about the fifth amendment or ordinance that happened a month ago, he said, “During these unusual times protecting lives is most significant for us and this in turn requires us to protect livelihoods and save lives of the that are the engines of growth, hope of prosperity, provide goods and services, employment and have an organisational capital over and above their liquidation.”

He also informed that substantial work was going on for having a framework for micro, small and medium enterprises (MSMEs) with some special dispensations, some relaxations without disturbing the basic structure of the Code.


On the committee set up by the government to give a pre-pack framework, he said, We expect the report of the committee to come by the end of this month. But if this has to be drawn on law and not as per market practice, it will require an amendment in law.


He also said that work is ongoing on many fronts be it group, cross-border, individual insolvencies and others.


But I think the insolvency law has to remain focussed on basic code, its focus should remain to rescue the company and must continue to serve the economy.


Meanwhile, former finance secretary S C Garg, who was also present on the occasion, said the innovative and proactive role of the government and IBBI is heartening to see whereby IBC and regulations may change as per the need of the hour.


IBC is the most effective instrument available to banks for recovering their defaulted loans to the best extent possible. Discretion to use IBC or restructure loans under RBI scheme or through any other legitimate way should be that of the banks. Suspension of IBC should be revoked to restore this instrument to banks, he added.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)





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