All you need to know about the IBC Amendment Bill, 2020 passed by the Parliament on 21st September, 2020

The Parliament passed the Insolvency and Bankruptcy Amendment Bill, 2020, to replace the IBC Ordinance (Amendment), 2020 which was passed on June 5^th earlier this year.

Timeline of events related to the amendments to Insolvency and Bankruptcy Code, 2016

The IBC (Amendment) Ordinance, 2020 primarily sought to bring about the following changes to the I & B Code:

1. Suspension of Section 7, 9 and 10 of the Insolvency and Bankruptcy Code, 2016, for 6 months (i.e. till 25^th September, 2020) ‘to prevent corporate persons which are experiencing distress on account of the unprecedented situation, being pushed into insolvency proceedings under the Code’.

2. Exclusion of the defaults arising ‘on account of unprecedented situation’ for insolvency proceedings under the Code. In other words, the defaults arising during the nationwide lockdown (on or after 25^th March, 2020) on account of its impact on the ‘normal business operations’ are to be excluded for insolvency proceedings under the Code.

The Finance and Corporate Affairs Minister, Nirmala Sitharaman, during the discussion in the Lok Sabha on the Amendment Bill highlighted that the threshold given under section 4 of the I & B Code for initiating insolvency proceedings has been increased from Rs. 1 lakh to Rs. 1 crore to protect the Micro, Small and Medium Enterprises (MSMEs) from being dragged into insolvency.

Contributing to the discussion, Mr. Jaydev Galla (TDP) suggested the government institute more benches to the NCLT and fill the vacancies in the Tribunal. Manish Tewari remarked that the supply-side measures would not be of much help, and thus urged the government to focus on demand-side initiatives by extending monetary help to the poor.

The Finance Minister mentioned that the decision regarding further extension of the period of suspension of the aforementioned sections of the Code and the concerns of the other members related to the appointment of judges to the NCLT and NCLAT, would be addressed soon.

She remarked that the possibility of large-scale insolvency proceedings post the lifting of the nation-wide lockdown is meagre as, a) the defaults arising during the lockdown have been excluded for insolvency proceedings forever, and b) stakeholders have other options for loan stress resolution other than initiating proceedings under the Code.

She also stressed that IBC is a critical part of business now, and the priority is to keep the company as a going concern rather than to liquidate them, she said, adding that 258 companies were saved from going bankrupt through the IBC process, while 965 firms went for liquidation.