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Post-IBC Amendment, Lenders Can't Drag Defaulters to Bankruptcy Court for Insolvency Proceedings

Representative image.

Representative image.

The government an ordinance to amend the Insolvency and Bankruptcy Code (IBC) wherein fresh insolvency proceedings will not be initiated for defaults on account of the pandemic.

With the government's amendment of the Insolvency and Bankruptcy Code (IBC), lenders may no longer be able to move court against defaulting companies.

The government on Friday promulgated an ordinance to amend the IBC wherein fresh insolvency proceedings will not be initiated for defaults on account of the coronavirus pandemic and suspended sections 7, 9 and 10 of the code.

Default on repayments from March 25, the day when the nationwide lockdown began to curb coronavirus infections, would not be considered for initiating insolvency proceedings for a certain period of time.

Insolvency proceedings would not be initiated for "any default arising on or after March 25, 2020 for a period of six months or such further period, not exceeding one year from such date, as may be notified in this behalf," the ordinance said.

Under the IBC, an entity can seek insolvency proceedings against a company even if the default is only one day. This is subject to the minimum threshold of Rs 1 crore. Earlier, the threshold was Rs 1 lakh.

The Union Cabinet on June 3 cleared the proposal to suspend the insolvency proceedings to avoid companies at large from being forced into insolvency proceedings for non-performing assets during the lockdown period.

(With inputs from PTI)