The spread of Pandemic COVID-19 all around the globe has created a situation of hue and cry in different parts of the globe. The Pandemic COVID-19 has affected almost 22 Lakhs people and has caused death of almost 1.5 Lakhs of people all over the globe.
In order to contain the pandemic COVID-19 in India the Government of India and of different States has come up with various strategies and restrictions. One such strategy of Government of India is 21 days complete lockdown in India and subsequent extension till 03.05.2020.
Further, in order to contain the spread of Pandemic impacts, the Legislature, Executive and Judiciary has also come together and have been constantly coming up with amendments in laws, notifications, circulars and orders to control the situation.
Taking into consideration the economic slowdown and hardship being faced by people certain amendments have been in the Insolvency and Bankruptcy for providing certain reliefs.
Impact on Insolvency Laws in India
The Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as ‘IBC”) an exhaustive code came into force in December, 2016 with an objective of giving an opportunity of revival to insolvent corporates and liquidation being the last resort in order to keep the Corporate as a going concern. IBC also aims at promotion of entrepreneurship, enhancement of value of assets and balancing the interest of all stake holders.
As per Section 4 of IBC a case under IBC is made if there exists default of Rs. 1 lakh. Section 4 of IBC reads as follows:
“Section 4: Application of this Part-II (INSOLVENCY RESOLUTION AND LIQUIDATION FOR CORPORATE PERSONS):
(1) This Part shall apply to matters relating to the insolvency and liquidation of corporate debtors where the minimum amount of the default is one lakh rupees:
Provided that the Central Government may, by notification, specify the minimum amount of default of higher value which shall not be more than one crore rupees.”
Therefore, the Central Government while exercising its power as provided under proviso to Section 4 (1) of IBC vide Notification No. S.O. No. 1205 (E) dated 24.03.2020 has increased the threshold limit of default to One Crore Rupees. The Notification provides as follows:
“In exercise of the powers conferred by the proviso to section 4 of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), the Central Government hereby specifies One Crore rupees as the minimum amount of default for the purposes of the said Section.”
Hence, by virtue of said Notification an application under Section 7, 8 or 10 of IBC can be filed only if the default amount is Rupees one crore or more instead of one lakh or more. The aforesaid increment in the threshold limit has been done in order to protect the MSME enterprises which would have otherwise hit IBC during the pandemic COVID-19 owing to lockdown in the Country.
Further, the Finance Minister in her speech (as available under Press Release ID: 1607942 dated 24.03.2020 released at 05:10 PM) has also declared that if the pandemic COVID-19 situation continues till 30.04.2020, the Government may consider and suspend the applicability of Section 7, 9 and 10 of IBC for six months.
However, the said notification doesn’t clarify as to its applicability if it applies on default occurred prior to lock-down as well or it applies only to those defaults which occurred during the on-going lock-down.
It is imperative to note that as per the purposive interpretation of statute after taking into consideration the objective behind the said interpretation it can be prudently concluded that the said notification is prospective in nature and is thus applicable on defaults during the pandemic COVID-19.
The Lockdown in Country has its impact over the on-going proceedings under IBC for which time is running under Section 12 of IBC. In order to provide justice after looking into the situation prevailing in the Country the Insolvency and Bankruptcy Board of India (hereinafter referred to as ‘IBBI’) has amended the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 via Press Release No. IBBI/PR/2020/06 dated 29.03.2020 by way of insertion of Regulation 40 C.
Regulation 40C as inserted by IBBI reads as follows:
“Regulation 40C: Special provision relating to time-line- Notwithstanding the time-lines contained in these regulations, but subject to the provisions in the Code, the period of lockdown imposed by the Central Government in the wake of COVID19 outbreak shall not be counted for the purposes of the time-line for any activity that could not be completed due to such lockdown, in relation to a corporate insolvency resolution process.”
The Insolvency and Bankruptcy Board of India (IBBI) vide Notification No. IBBI/2020-21/GN/REG060 dated 17.04.2020 came up with Insolvency and Bankruptcy Board of India (Liquidation Process) (Second Amendment) Regulations, 2020 and inserted Regulation 47A for exclusion of period of Lockdown in order while adhering to time line for Liquidation Process.
The Regulation 47A inserted vide aforesaid Amendment reads as follows:
“Exclusion of period of lockdown.
Regulation 47A: Subject to the provisions of the Code, the period of lockdown imposed by the Central Government in the wake of COVID-19 outbreak shall not be counted for the purposes of computation of the time-line for any task that could not be completed due to such lockdown, in relation to any liquidation process.”
The National Company Law Appellate Tribunal (hereinafter referred to as ‘NCLAT’) vide Suo Moto – Company Appeal (AT) (Insolvency) No. 01 of 2020, order dated 30.03.2020 has held that:
“That the period of lock-down ordered by the Central Government and the State Governments including the period as may be extended either in whole or part of the country, where the registered office of the Corporate Debtor may be located, shall be excluded for the purpose of counting of the period for ‘Resolution Process under Section 12 of the Insolvency and Bankruptcy Code, 2016, in all cases where ‘Corporate Insolvency Resolution Process’ has been initiated and pending before any Bench of the National Company Law Tribunal or in Appeal before this Appellate Tribunal.”
The aforesaid amendment and order of NCLAT has come as relief in light of the hardship being caused by the Lockdown in the Country owing to pandemic COVID-19.
In addition to the Legislature there are certain steps taken by the Supreme Court and Tribunals in response the pandemic COVID-19.
As per the Notice dated 22.03.2020 and 28.03.2020 issued by the Registrar of NCLT, the NCLTs were to remain close for judicial work till 31.03.2020. Further, on 31.03.2020,the Registrar has further extended it till 14.04.20 for all respective benches.
Thereafter, pursuant to extension of Lockdown till 03.05.2020, as per Notice dated 14.04.2020 by Registrar of NCLT all benches have been directed to extend the directions under Notice dated 22.03.2020 till 03.05.2020.
Moreover, the Supreme Court while exercising its special powers as laid down under Article 142 of Constitution of India vide Suo-Motu Writ Petition (Civil) No. 3/2020 has also passed an order suspending the running limitation period both under the General and Special Laws retrospectively from 15.03.2020 in light of the difficulty on part of litigants owing to pandemic COVID-19.
Therefore, aforesaid discussed are a few steps in response to the pandemic COVID-19 in India, after taking into consideration the hardship being faced, and in order to contain the pandemic effects.
Impact of Insolvency Laws in Singapore
In order to combat the pandemic COVID-19 in Singapore a draft of COVID-19 (Temporary Measures) Bill has been drafted proposing a temporary stay on all the actions of Creditors for Non-Performance in respect of following:
- Any loans to Singapore SME’s (with annual revenue of not more than S$ 100 million), secured either in whole or in part by the immovable or movable property for business purposes; and
- Performance bond with respect to construction or supply contracts,
in each case wherein the obligation was due to be performed on or after 01.02.2020.
Further the threshold limit for filing of company bankruptcy has been raised from S$10,000 to S$100,000 and the statutory period for responding to the creditors demand has also been extended from twenty-one days to six months.
Impact of Insolvency Laws in UK
The disruption being caused by the pandemic COVID-19 in the Country, the Government has responded to the pandemic in following manner:-
- Temporary Suspension of Wrongful Trading retrospectively from 01.03.2020 for a period three months with a provision for extension of the same, if required.
- A new moratorium period has been granted to the companies which are distressed but are financially viable during which the creditors cannot take action against the company and thereby allowing them to restructure or procure investment. Although the Government has not come up with precise time limit of moratorium period however it had previously supported the time period of 28 days with a provision of extension, if there exists prospects.
- Prohibiting suppliers from terminating the contract for supply of goods and services on the ground that the company has entered into insolvency procedure.
- A new restructuring plan which focuses on “cross-class-cram-down” under which the companies can bind the dissenting classes of creditors.
- A moratorium on winding up petitions with hearings being adjourned for a minimum period of three months unless it’s urgent.
Therefore, the aforesaid are few responses by the Government with respect to the insolvency laws in UK to the pandemic COVID-19.
The pandemic COVID-19 is spreading all across the countries and has been causing hardship to people at large. The various steps taken by the aforesaid discussed countries in response to the pandemic COVID-19 are to promote the entrepreneurship and to prevent the closure of business across the different countries during the pandemic. The respective Governments have taken into consideration situation prevailing in their country and have come up with aforesaid steps to assist in prevention of closure of business considering their genuine difficulties in repayment of debts.
Anandaday Misshra is the Founder & Managing Partner, AMLEGALS, a multi-specialized law firm. He is a practising High Court Advocate with two decades of experience in litigation and arbitration. He specializes in GST, Contractual Laws, Arbitration, Business Laws & Insolvency Laws. He has authored book on GST- Law & Procedure (Taxmann). His other two upcoming books are on Insolvency & Bankruptcy Code and Arbitration.Disclaimer: The views or opinions expressed are solely of the author.