With shutters officially down till May, experts had foreseen a slew of Insolvency and Bankruptcy Code (IBC) cases flooding courtrooms post the COVID-19 lockdown, when Indian Prime Minister, Mr Narendra Modi had extended the nation-wide lockdown period to 3rd May, 2020.
In the battle against COVID-19, many businesses are at a standstill, which has been disrupting the operational agreements and payments. Disruptions in working and business transactions trigger incidents for both financial and operational creditors to initiate insolvency measures against the corporate debtors. If these actions are initiated at a mass scale, then it can have a destructive impact on the Indian economy.
TRC Corporate Consulting explained that it would be challenging to encourage bidding for any business under the lockdown measures, as there would be a decline in most business valuations. ‘By the time, the danger of COVID-19 clears out it may be September-October and the valuation would have substantially dropped and may not be in sync with previous valuation reports.’
Insolvency And Bankruptcy Board Of India: Change in Sections of IBC Directives
Recognizing and acknowledging such an impact, in March 2020, the Finance Minister of India, Nirmala Sitaraman had announced that in case the state of affairs remains the same beyond 30th April 2020, then Central Government might consider suspending sections 7, 9 and 10 of the Insolvency And Bankruptcy Code (IBC), 2016 for six months as directed under the Insolvency And Bankruptcy Board Of India (IBBI).
The objective behind suspending certain IBC sections, regulated by the Insolvency And Bankruptcy Board Of India ((IBBI) has been to stop businesses at large from being coerced into insolvency procedures owing to causes of force majeure.
Moreover, the Insolvency and Bankruptcy Board of India (IBBI) and the National Company Law Appellate Tribunal (NCLAT), in March, regulated double relief by enabling guidelines declaring that the lockdown period would not be considered w.r.t corporate insolvency resolution process (CIRP).
IBBI India: Directives of Central Government For Specific Sections
As per Section 7 of the IBC Act, financial creditors are allowed to file for a corporate insolvency resolution process against corporate debtors. Whereas, Section 9 of the IBC Act presents the application of insolvency by an operational creditor, even as Section 10 remains active for initiation of insolvency proceedings by a corporate candidate. Additionally, under the IBC Act, the operational creditors have to file for insolvency within three years, following which it falls under limitations.
What Industry Leaders Had To Say About Suspension of IBC Sections?
Saurav Kumar, ETCFO & Partner, IndusLaw stated, ‘The prospects are clear, sections 7, 9 and 10 are not set out to be allowed for the subsequent six months.’ He believes that provisions as per the Limitations Act also needs to be suspended. He expressed, ‘Any limitations that may terminate in these six months should automatically be extended further than the given time-frame.’
Saurav shared his belief that an ordinance to this effect would offer some respite to corporate debtors and help them stabilize during the lockdown. Similarly, debtors in the real estate market can now find solutions to provide finished apartments to patrons, including homebuyers, micro, small and medium enterprises (MSMEs). Where start-ups as corporates will get hold of time that is necessary to regroup as they lack adequate reserves to survive in the present scenario.
Expert Opinions On IBBI India’s Decision To Suspend IBC Sections
Reaffirming the sentiment, Kumar Saurabh Singh, Partner at Khaitan & Co. stated that the government must also cover liquidation issues in other courts and tribunals apart from the IBC proceedings. He expressed, ‘A similar tactic is required to be followed by different courts/tribunals in India to curb enforcement and sale of assets of businesses that are suffering from the influence of the pandemic. This would enable the benefit of suspension of insolvency law to reach effectively to the borrowers.
Contrarily, many industry leaders believe the fact that while COVID-19 impacts everyone, the interests of the borrower and lenders are not always united. Therefore, any amendment which offers relief for the borrower’s needs, must also necessitate commensurate assistance to the lenders.
If a lender is not able to initiate insolvency proceedings, it automatically means that the loan requires to be bilaterally restructured beyond the IBC guidelines. Doing so means that there is an urgent need for restructuring other components of the system, such as:
Reserve Bank Of India’s (RBI) asset provisioning
Securities and Exchange Board of India’s (SEBI) side pocketing norms
Suitable amendments to such components can adequately accommodate the ‘benefit’ that the corporate borrowers and lenders enjoy as a temporary reprieve.
How TRC Helps with Insolvency and Bankruptcy Services?
The global financial crisis has forced many businesses into a state of instability and uncertainty. When businesses are grappling with challenging choices, TRC Corporate Consulting can provide assistance with innovative suggestions to accelerate recovery processes, such as restructuring outside of insolvency proceedings. Our experts also facilitate structured sales and required assistance for judicial insolvency proceedings. We work with distressed businesses as well as prospective buyers, stockholders, executives, creditors, directors and insolvency officers.
TRC Corporate Consulting’s insolvency practices bring years of expertise in working with third parties such as financiers, lawyers, insolvency courts, credit underwriters, and public organizations.
Our insolvency and bankruptcy professionals have extensive experience in working collectively with clients from around the world to deliver assistance based on various points of view. When you avail our financial advisory services, we don’t just consider you to be a client, we think of you as our business partner. Thus, fulfilling your business requirements become our number one priority. If you have any queries, contact us!