Fresh corporate bankruptcy filings for loans defaulted during the pandemic will remain suspended till the end of the financial year, with the government extending the ongoing freeze.
The Insolvency and Bankruptcy Code (IBC) was initially suspended for six months from 25 March, which was later extended by another three months ending 24 December.
Union finance minister Nirmala Sitharaman on Monday said the government has now decided to extend the suspension for a full year.
Sitharaman said at an interaction with the Bangalore Chamber of Industry and Commerce that the government has extended various deadlines and eased compliance requirements to ensure companies were not stressed during the pandemic.
“Even suspension of the IBC has been extended even further from 25 December. I think we have moved to say that it can be up to 31 March 2021. The entire year has had the Insolvency and Bankruptcy Code suspended and rightly so because every industry has gone through major stress because of the pandemic and nobody could be drawn towards insolvency process, which may have occurred during the pandemic,” Sitharaman said.
An official notification giving details of the extension was awaited at the time of publishing.
Extending the suspension of bankruptcy action during the pandemic would keep alive both viable as well as unviable companies, a compromise that policymakers have to accept in order to ensure that the viable ones survive.
On the other hand, lifting the suspension on the Insolvency and Bankruptcy Code could expose even viable companies to the possibility of liquidation if investors do not bid for the assets.
Experts have given diverse views about the policy choice.
Former Reserve Bank governor Raghuram Rajan said that suspending fresh bankruptcy cases was unfortunate as it viewed bankruptcy resolution as a punishment and not necessarily as a way of restructuring capital structure and ownership, Mint reported on 28 July.
Insolvency and Bankruptcy Board of India chairperson M.S. Sahoo said in an interview on Monday that the objective of suspending initiation of bankruptcy proceedings was to protect businesses that are otherwise viable and yet could be liquidated for want of resolution applicants in the wake of the pandemic.
Bankruptcy resolution proceedings are going on in the case of corporate defaults that took place before 25 March (non-covid defaults).
Out of the over 4,000 bankruptcy cases admitted to tribunals so far under Insolvency and Bankruptcy Code, turnaround plans have been cleared in the case of 277 and liquidation proceedings are on in over 1,000 cases at the end of September, according to data available with the bankruptcy board.
Source: Mint