The Insolvency and Bankruptcy Code (Second Amendment) Bill, 2020 (the “Bill“) has been passed recently by the Lok Sabha on 21st September and by the Rajya Sabha on 19th September, 2020. The Bill, a two pager, replaces the ordinance promulgated on 5th June, 2020 to safeguard the companies in distress due to covid-19 pandemic and to minimise the initiation of Insolvency proceedings.
Whilst the Bill is pending Presidential assent, its key feature is that it temporarily suspends sections 7, 9, and 10 of the Insolvency and Bankruptcy Code, 2016 for the period of six months starting from 25th March, 2020. This period of six months can be extended up to one year by the notification of the Central government.
For reference, Section 7 deals with the initiation of corporate insolvency resolution process by financial creditor but there will be no proceedings for the default arising from 25th March, 2020 for the period of six months. Section 9 talks about the application for initiation of corporate insolvency resolution process by operational creditor which has been suspended for aforesaid period by the Bill. Section 10 deals with initiation of corporate insolvency resolution process and this provision has also been suspended by the Bill for aforesaid period.
The Bill prohibits initiation of fresh insolvency proceedings against companies for dues arising from 25th March, 2020 for six months considering it to be an uncertain or unprecedented situation. It seeks to facilitate the companies to revive successfully from the distress caused by the unprecedented covid-19 pandemic and they will be on stand of their own once this pandemic gets over.
The Bill provides that the credits which were due from 25th March onwards for six months would remain unrecoverable forever. It further clarifies that proceedings initiated prior to the 25th March, 2020 and defaults arisen before that period shall not be affected by these provisions.
In relation to the defaults for aforesaid period, the Bill prevents the Resolution Professional from filing a new application for corporate insolvency resolution process before National Company Law Tribunal.
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