In a major development, the Finance Minister on Sunday announced that Insolvency and Bankruptcy Code will be suspended for one year for the new cases. This means that no new cases will be filed in National Company Law Tribunal (NCLT). With this move, the centre wants to reduce the compliance burden and offer assistance to the companies who are not in a position to repay their debt due to the Covid-19 impact. Besides, the centre inflated the threshold limit for MSMEs for IBC proceedings to Rs 1 crore.
IBC allows the creditors to take the debtors to NCLT for their defaults, as low as one. This development helped the creditors to handle the fugitive and wilful defaulters. But pandemic Covid-19 led lockdown has halted the operations of their businesses. And many firms are now not in a position to run their offices and generate any revenue.
From the time lockdown has been implemented, firms operating in the non-essential sector are facing huge crisis in terms due to the significant decline in revenue. On top of this, the lending cycle is disrupted at many stages as the moratorium benefits not being passed on to NBFCs, the banks are reluctant to lend to that sector as well the MSMEs and MFIs. In such times, the probability of firms facing bankruptcy troubles is very high.