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Blog Newsletter Article

IBC Relief during COVID-19 Pandemic


On 22nd April 2020 Ministry of Corporate Affairs, Government of India in the light of COVID-19 pandemic as a one-time measure proposed to give relief to Companies from Insolvency proceedings for the next six months.

The Union Cabinet taking note of the economic crisis caused due to the complete lockdown has cleared this proposal to give lenders or creditors a six month window from exposure to Insolvency and Bankruptcy proceedings.

It is believed that no fresh case of default shall be brought for bankruptcy during the aforesaid period. However, no formal communication regarding any economic package or such relief has been made, neither the President of India has given his assent until now.

Sources suggest that the new clause (10A) will suspend sections 7, 9 and 10 of IBC, 2016 for six months or until further orders but not exceeding an year.

The observation made herein is reinforced when viewed in line with the speech given by Hon’ble Finance Minister on 24th March, 2020 wherein she stated that if the virus situation continues beyond 30th April, 2020, the Government may consider suspending IBC provisions namely sections 7, 8 and 9 for six months. Further, Mrs. Nirmala Sitharaman raised the default threshold for MSME’s to prevent triggering of IBC and clarified that no additional fee for late filing on MCA21 registry will be charged during moratorium period from 1st April to 30th September 2020.

This move if implemented shall help protect Companies from being pushed into insolvency on account of force majeure causes of default.

Moreover, it will reduce the compliance burden enabling non-compliant companies and LLP’s to start afresh. This will also be a huge respite to the MSME sector which is already reeling under tremendous financial distress due to the pandemic and the resultant lockdown.