IBC suspension likely to be extended by 3 more months during the pandemic

Small businesses rejoiced as the government is hinted at extending the IBC suspension by three more months to stop companies from being forced into liquidation proceedings caused by debt defaults during the pandemic struck nation. The government is expected to extend IBC suspension by another three months.

According to the latest reports, the government was undecided on whether to extend the suspension further or not. A senior government official also said that green shoots were finally visible in the economy and the stock market was booming, however, they were not moving under the Insolvency and Bankruptcy Code (IBC).

The said extension comes at a time when the small businesses were already seeking protection from bankruptcy proceedings for defaults. This was supposed to end on the 24th of December. The Insolvency and Bankruptcy Board of India (IBBI) is said to decide on extending the current suspension of fresh bankruptcy proceedings soon.

Under the IBC Second Amendment Act of 2020, fresh cases were barred for six months from 25th March. It was again extended by another three months till the 24th of December, much to the relief of small businesses, but the law states that a maximum suspension of new cases for one-year during the pandemic till the end of March 2021 should be allowed. According to experts, the extension of the suspension of new cases under IBC by another three months is a valid solution.

Additionally, as per ICRA, the suspension of new proceedings under IBC, financial creditors may be able to realize just Rs 60,000-65,000 crore in the current financial year, as compared to Rs 1 lakh crore that was realized in the last financial year. Moving forward, realizations for financial creditors could continue to suffer in the financial year of 2022 as well because of the suspension of fresh insolvency proceedings till December 24, 2020, for default accounts after March 25, 2020, which is set to be extended by three more months.


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