Central government suspends operation of Insolvency and Bankruptcy Code by another 3 months to protect companies in distress due to Covid-19

The Central government on Thursday suspended the operation of the Insolvency and Bankruptcy Code (IBC), 2016 by another three months to protect companies in distress due to the COVID pandemic from being into bankruptcy tribunals because of the crisis.

A gazette notification issued in this respect said that the suspension of section 7, 9 and 10 of the IBC Code initially for six months has been further extended for another three months starting from September 25, 2020.

The Code was earlier suspended for six months from March 25, 2020, to help the firms recover from the financial distress due to the global pandemic. During the suspension of IBC codes, these firms are protected from being referred to insolvency proceedings.

Suspension of IBC was first announced by Finance Minister Nirmala Sitharaman on May 17, 2020. While suspending the bankruptcy, the government said that the action was taken to protect viable firms even if it comes at the cost of keeping unviable ones alive during the period till which IBC remains suspended.

Suspension of the fresh bankruptcy proceedings will act as a breather for many companies as it stops the lenders from restructuring companies which may be beyond redemption.

IBC (Second Amendment) Act, 2020

IBC (Second Amendment) Act, 2020 enables the Union Government to bar initiation of any bankruptcy proceedings against companies for defaults after March 25, 2020. The suspension of the proceeds initially meant for six months has been extended by another three months.