Barely a week before the deadline, IBC resumption hangs in balance

The official said that while on the one hand green shoots were visible in the economy and the stock market was booming, on the other things were not moving under IBC

Barely a week left for the expiry of the suspension of bankruptcy proceedings against companies, the government is still undecided whether to extend the suspension further or not because “arguments on both sides are strong”, a senior government official told Business Standard. 

The official said that while on the one hand green shoots were visible in the economy and the stock market was booming, on the other things were not moving under the Insolvency and Bankruptcy Code (IBC). 

“Both are valid arguments. A decision has not been taken yet...But there is a deadline and the finance minister will take the final view,” the official said. 

Asked about the government’s stand, Minister of State for Finance and Corporate Affairs Anurag said, “As of now, the suspension is only till December 24. If that changes, it will be conveyed to you.” 

In June, in order to give a breather to companies facing stress due to the Covid-19 pandemic, the government brought an Ordinance exempting them from facing corporate insolvency resolution proceedings against any default arising on or after March 25, 2020, for a period of six months. This suspension was extended in September for another three months, ending December 24. 

The IBC law empowers the government to issue a notification to extend the suspension for a period not exceeding one year, which means that it could be extended up to March 24, 2021. 

While the government weighs its options on further suspension of IBC proceedings, the Supreme Court has reserved its verdict on pleas related to the extension of the loan moratorium period. 

The top court was hearing a batch of petitions seeking relief in the form of extension of the moratorium period beyond six months or waiver of interest by the Reserve Bank of India.

The World Bank and the International Monetary Fund have suggested a three-phase approach to help economies transition smoothly to the positive side of the graph. First involves taking copious measures to halt insolvency and debt enforcement activities. In the second phase, when a huge wave of insolvencies is anticipated, it has to be addressed by transitional measures such as special, out-of-court settlements. The third phase calls for regular debt resolution tools to address the remaining debt overhang and support economic growth in the medium term. 

“Some work has already been done in all of these areas. Complementary measures are being taken for a faster and effective resolution of stressed assets such as the pre-packaged scheme and special framework for MSMEs,” the official said.