INSOLVENCY AND BANKRUPTCY CODE

Subject : Economy

Context : Suspension of the insolvency and bankruptcy code (IBC) is being extended till March 31, 2021, finance minister Nirmala Sitharaman said at the Bangalore Chamber of Industry and Commerce virtual conference.

Concept :

About :

• Insolvency and bankruptcy code 2016 was introduced to resolve the bankruptcy crisis in corporate sector.
• Under IBC, either the creditor (banks) or the loaner (defaulter) can initiate insolvency proceedings.
• It is done by submitting a plea to the adjudicating authority, the National Companies Law Tribunal (NCLT).
• According to IBC, a financial creditor holds an important role in the corporate insolvency process.
• The Committee of Creditors (CoC) under IBC includes all financial creditors of a corporate debtor.
• The CoC will appoint and supervise the Insolvency Professional.
• It has the power to either approve or reject the resolution plan to revive the debtor, or to proceed to liquidate the debtor.

Reasons for Suspension

• Companies are facing significant disruption due to the nationwide lockdown among other COVID-19-related measures.
• The government is also working on a special resolution framework for micro, small, and medium enterprises (MSMEs).
• The threshold for triggering the insolvency process has been increased substantially for these.
• All the above measures are designed to extend relief to businesses in these extraordinary times.
• However, policy-makers would do well to account for the unintended consequences as well.
• g. banks are worried that the moratorium on repayment of loans could affect the credit culture
• It might well lead to higher non-performing assets (NPAs).