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Govt suspends fresh IBC proceedings for one year; debts related to COVID excluded from 'default'

Govt suspends fresh IBC proceedings for one year; debts related to COVID excluded from 'default'

Govt suspends fresh IBC proceedings for one year; debts related to COVID excluded from 'default'
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By CNBCTV18.com May 17, 2020 1:06:05 PM IST (Updated)

The government will suspend fresh initiation of insolvency proceedings up to one year and increase the minimum threshold to initiate such proceedings to Rs 1 crore from Rs 1 lakh, Finance Minister Nirmala Sitharaman said on Sunday, while announcing the fifth tranche of the Rs 20 lakh crore economic package.

The government will suspend fresh initiation of insolvency proceedings up to one year and increase the minimum threshold to initiate such proceedings to Rs 1 crore from Rs 1 lakh, Finance Minister Nirmala Sitharaman said on Sunday, while announcing the fifth tranche of the Rs 20 lakh crore economic package.

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To enhance the ease of doing business, a special insolvency resolution framework for MSMEs under Section 240A of the Insolvency & Bankruptcy Code will be notified soon, the FM said.
CNBC-TV18 had earlier reported that the government is expected to suspend insolvency proceedings and amend IBC.
Further, debt related to COVID-19 will be exempted from IBC proceedings for up to one year. These changes will be brought about via an ordinance, she said.
The fifth tranche of the economic package announced on Sunday consists of seven steps towards MGNREGA, Health & Education, Business and Covid, De-criminalisation of Companies Act, Ease of Doing Business, Public Sector Enterprise related matters and State government and resources related to states.
"While the MSME amendments have given some breathing space to the sector, experts are of the view that the blanket suspension of defaults on account of COVID could lead to unintended consequences," said Veena Sivaramakrishnan, Partner, Shardul Amarchand Mangaldas & Co.
Questions like why should an entity not refer itself to insolvency, what is the parallel regime of resolution, recovery steps are not curtailed and therefore will continue to rise, what is the framework for creditors to come up with a viable resolution plan outside of IBC, continue to remain unanswered, Sivaramakrishnan added.
 
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