NEW DELHI: In a bid to give breathing space to corporate borrowers hit by the coronavirus pandemic, the Centre has decided to suspend several provisions in the Insolvency and Bankruptcy Code that trigger insolvency proceedings against defaulters by up to one year.
Multiple reports suggest that the Union Cabinet meeting on Wednesday had cleared a proposal from the Ministry of Corporate Affairs to give companies relief from insolvency for the next six months via an amendment to IBC, 2016.
Section 7, 9 and 10 of the IBC would be suspended for six months and the suspension time can be extended up to one year, the reports said. The government will bring in an Ordinance to amend the IBC.
Section 7 and 9 pertain to initiation of corporate insolvency proceedings by a financial creditor and an operational creditor, respectively. Section 10 relates to filing an application for insolvency resolution by a corporate.
Under existing norms, if a payment default exceeds 90 days then the lender concerned has to refer the account for resolution under IBC.
The move is in line with Finance Minister Nirmala Sitharaman’s stance on March 24, when she hinted that if the coronavirus situation continued beyond April 30, the government might consider suspending IBC Sections 7, 8 and 9 for six months so that companies were not pushed into insolvency proceedings in force majeure causes of default.
“We are raising the default threshold to prevent triggering of IBC for MSMEs. If the situation does not improve until April 30, we can suspend Section 7,9 and 10 for six months,” she had said.
Sitharaman is also in charge of the corporate affairs ministry, which is implementing IBC.
Earlier, the minister had also hiked the default threshold from `1 lakh to `1 crore for triggering insolvency proceedings keeping in view that a lot of firms that are staring at defaults due to the halt in economic activity will benefit.
Setback for RBI’s plan to ensure funding to NBFCs
RBIs’ revised targeted long-term repo operations on Thursday received a poor 50% response as banks wary of lending to the NBFCs stayed away from bidding.
Against Rs 25,000 crore on offer with a three-year tenor at 4.40 per cent, banks put in bids worth only Rs 12,850 crore.
In contrast, a similar auction on April 9 attracted bids for Rs 1.14 lakh crore against Rs 25,000 crore on offer.
While there was no condition at that time except that the money had to be deployed within 45 days, RBI revised the norms this time insisting banks must deploy 50% of the funds in small and mid-sized NBFCs and MFIs. Hence the poor response