Government Suspended Bankruptcy Code, What Does It Mean for Banks ?

Bankruptcy Code suspension for one year, announced by the finance minister of India under COVID-19 relief package. It is done to provide relief to the companies from failing in commitment of repayment. It means companies are now not dragged into tribunals at a time during a year. Government will bring an Ordinance to implement it.

It is also said that the government will also make provisions in the law to exclude all debt associated with the coronavirus pandemic from defaults covered under the Insolvency and Bankruptcy Code (IBC). The minimum threshold for payment default for triggering bankruptcy proceedings against a company will be raised to ₹1 crore from ₹1 lakh.

The Bankruptcy Code amendment will also include a special framework for dealing with the bankruptcy of micro, small and medium enterprises (MSMEs). 

“Many businesses got severely affected by the lockdown and the coronavirus pandemic. Any debt which is incurred or a situation (of payment default) comes up for companies because of the coronavirus, then they shall not be included in the category of defaults (under IBC). No fresh insolvency proceeding shall be initiated up to one year,” FM Sitharaman said.

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