Latest News

Reforms to Insolvency & Bankruptcy Code: A Pandemic Restructuring

Courtesy/By: Sandra Anil Varkey | 2020-06-29 17:19     Views : 252

The ongoing COVID-19 pandemic has caused grave economic and social repercussions to business entities around the world. The Government of India has been consistently involved in issuing and promulgating ordinances to better the burning conditions in the economy. The primary aim of the government is to relax certain legal penalties which may be levied on individuals who deviate from statutory demands in the normal course of business. In the backdrop of falling demand, supply and production, the risk of financial leverage increases and lenders tend to claim their debts even at discounted rates. This may convert to a long list of pending insolvent cases. 

To tackle this adversity, the Government has introduced several reforms to aid the development of the economy. On June 5th, 2020 the Government promulgated an ordinance with the introduction of Section 10A under the Insolvency and Bankruptcy Code, 2016 (further, “the Code”). The said section refers to the suspension of any applications which may be filed by any creditor or company under Section 7, 9, or 10 of the Code. This suspension was made applicable to any default in payment which may occur on or after 25th of March for a designated period of 6 months, or even further. The rationale behind this ordinance was to prevent corporate debtors and companies to undergo forced insolvency processes during such unprecedented times. Further, the Union Finance and Corporate Minister have made a public announcement stating that the initiation of any insolvency process under Section 4 of the code will now cost Rs. 1 crore instead of Rs. 1 lakh. 

One impending criticism of such relaxations is the plausible negative impacts it might cause on the opportunities of Insolvency Professional since no new cases of insolvency can be admitted into the NCLT during the suspended period and the cost of initiating a case has also drastically increased. However, considering the larger state of affairs, it can be deduced that there may be no such repercussions on the opportunities available for insolvency professions. 

The primary justification for this argument is that the Code is a preventive law. As such, the primary purpose of legislations related to insolvency is to aid the business through a professional resolution plan which will prevent the need for a liquidation process. Upon the failure of a resolution plan, the liquidation process is quite tedious and has its disadvantages. For example, after the commencement of the liquidation process, no corporate debtor can stop the completion of the process and all the assets of the concern will be sold to clear the liabilities. Further, there will be an in-depth investigation on all the factors which caused the insolvency, thereby placing the officials of the concerned firm at grave risks of disqualification. As such, it is always preferred to revive a company from liquidation. In this concern, a Resolution Professional is also required to divide the Resolution Plan to prevent the company from entering into liquidation. 

Conclusively, though Resolution Professionals may prima facie be seen to have huge negative impacts due to the reforms to the Code, in reality, there is simply a need to redefine their roles and spread awareness regarding their duties and responsibilities. The major step towards this cause is to educate the concerned business entities to seek the advice of Resolution Professions even before the need to seek remedy under the Code. In this manner, the introduction of the new regulations and relaxation will not cause a deterrent effect on the role and functions of the Insolvency Professional. 

 

 

Courtesy/By: Sandra Anil Varkey | 2020-06-29 17:19