COVID-19 related debt excluded from definition of ‘default’ under Insolvency and Bankruptcy Code


New Delhi: Union Finance Minister Nirmala Sitharaman on Sunday (May 17) mentioned that the federal government has determined to exclude COVID 19 related debt from the definition of “default” under Insolvency and Bankruptcy Code (IBC) whereas outlining the ultimate tranche of the Rs 20 lakh crore financial package deal introduced by Prime Minister Narendra Modi to spice up financial system within the view of coronavirus disaster. 

The Finance Minister mentioned “With an eye fixed on additional enhancement of Ease of Doing Business, the federal government broadcasts suspension of contemporary initiation of insolvency proceedings as much as one 12 months; decides to exclude COVID 19 related debt from the definition of “default” under IBC.”

Further enhancement of Ease of Doing enterprise via IBC related measures 

-Minimum threshold to provoke insolvency proceedings raised to Rs. 1 crore (from Rs. 1 lakh, which largely insulates MSMEs). 
– Special insolvency decision framework for MSMEs under Section 240A of the Code to be notified quickly. 
– Suspension of contemporary initiation of insolvency proceedings as much as one 12 months relying upon the pandemic scenario. 
– Empowering Central Government to exclude COVID 19 related debt from the definition of “default” under the Code for the aim of triggering insolvency proceedings. 

Recent Corporate Law measures for Ease of Doing Business 

– Rationalization of Related Party Transaction related provisions 
– Timely Action throughout COVID-19 to scale back compliance burden under varied provisions of the Companies Act,2013 in addition to allow Companies conduct Board Meetings, EGMs & AGMs, Rights difficulty by leveraging the strengths of Digital India 
– In 221 resolved circumstances, 44% Recovery has been achieved since inception of IBC, 2016 
– Admitted claims quantity to Rs 4.13 Lakh crores 
– Realizable quantity is Rs 1.84 Lakh crores 
-Under IBC, 13,566 circumstances involving a complete quantity of Rs 5.01 lakh crores (approx.) have been withdrawn earlier than admission under provisions of IBC until 29th Feb 2020. 

FM Sitharaman mentioned the federal government has determined to decriminalise Companies Act defaults and drop 7 compoundable offences and 5 to be handled under different framework. The measures are:

– Decriminalization of corporations act defaults involving minor technical and procedural violations
– Majority of the compoundable offences sections to be shifted to inner adjudication mechanism and powers of RD for compounding enhanced 
– The Amendments will de-clog the prison courts and NCLT
– Seven compoundable offences altogether dropped and 5 to be handled under different framework

“All sectors are open to the private sector while public sector enterprises will play an important role in defined areas,” she mentioned. Accordingly, the federal government will announce a brand new coverage whereby:

– List of strategic sectors requiring the presence of PSEs in public curiosity can be notified
– In strategic sectors, at-least one enterprises will stay within the public sector however the personal sector can even be allowed
– In different sectors, PSEs can be privatised 
– To decrease wasteful administrative prices, the quantity of enterprises in strategic sectors can be between one to 4, others can be privatised or merged or introduced under holding corporations. 

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