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  • Writer's pictureGandhi & Associates

Impact of COVID-19 on Insolvency and Bankruptcy Code, 2016

Updated: Apr 24, 2020

Taking cognizance of the disruptions caused by the outbreak of COVID-19 pandemic and consequent lock-down imposed by the Government of India up to May 3rd, 2020, the Central Government and Insolvency and Bankruptcy Board of India (“IBBI”) have announced certain temporary measures and relaxations under the Insolvency and Bankruptcy Code, 2016, as amended (“Code”).


We summarize herein such key measures and relaxations.

1. Increased Default Threshold: Section 4 of the Code prescribed a default threshold of INR 1,00,000 for initiation of insolvency proceedings against a Corporate Debtor, with a power to the Central Government to specify a higher threshold by notification, not exceeding INR 1,00,00,000. In order to safeguard the interest and existence of MSMEs in the aftermath of the COVID-19 lockdown, the Central Government by its notification dated March 24, 2020, amended Section 4 of the Code and increased the default threshold for the commencement of Corporate Insolvency Resolution Proceedings (“CIRP”) to INR 1,00,00,000. Consequently, now both, Financial Creditor and Operational Creditor can initiate CIRP only if the claim amount involved exceeds INR 1,00,00,000.

2. Timeline in relation to CIRP: The IBBI amended the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (“CIRP Regulations”) by adding regulation ‘40C – Special Provision relating to time-line’, providing that, the period of lock-down imposed by the Central Government in the wake of COVID-19 outbreak shall not be counted for the purposes of the timeline for any activity that could not be completed due to such lock-down, in relation to the corporate insolvency resolution process. Accordingly, the time lost due to COVID-19 lock-down will not be considered towards computing the time limit prescribed for various activities under the Code at various stages of the corporate insolvency resolution process, for e.g. appointment of IRP as RP, the formation of CoC, etc.

3. Suspension of Proceedings: The Central Government had indicated that if the current situation with regard to COVID-19 continues after April 30, 2020, then, Section 7 (Initiation of Insolvency Proceedings by Financial Creditor), Section 9 (Initiation of Insolvency Proceedings by Operational Creditor) & Section 10 (Initiation of Insolvency Proceedings by Corporate Applicant) of the Code may be suspended for a period 6 (six) months. Now since the Lockdown has been extended, such suspension should indeed be implemented resulting in a situation where no financial creditor or operational creditor will be able to initiate the corporate insolvency resolution process during the suspension period.

Therefore, the Cabinet is likely to consider, at its next meeting, an Ordinance to amend the IBC to hold off proceedings in the insolvency courts. This suspension may pay the way for the annihilation of the Lenders who are themselves facing a cash crunch and laden with the payment of wages to employees, temporary, permanent, or consultants. As for the corporate insolvency resolution process that has already commenced, it remains to be seen what stage of the process may be taken as cut-off by the Central Government.

Please feel free to reach out to any member of the G&A Team in case you require any clarifications on the above.

Gandhi & Associates

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