Updated 21.09.20 : Lok Sabha also passed Insolvency and Bankruptcy Code (Second Amendment) Bill, 2020 to temporarily suspend initiation of corporate insolvency resolution process under Insolvency and Bankruptcy Code.
The Rajya Sabha passed bill to temporarily suspend initiation of corporate insolvency resolution process under Insolvency and Bankruptcy Code.
Finance Minister Nirmala Sitharaman explained that the Insolvency and Bankruptcy Code Bill shall temporarily suspend initiation of corporate insolvency resolution process for a period not exceeding one year, from March 25, 2020.
It has been proposed to ease the financial stress being faced by companies during the extraordinary economic situation caused by the COVID-19 pandemic.
Salient Features of the Insolvency and Bankruptcy Code (Second Amendment) Bill, 2020
Prohibition on the initiation of CIRP
The Bill restricts initiation of CIRP, voluntary or by the creditors, for defaults that arose during the six months from March 25, 2020. This period may however be extended by the Central Government to one year, through notification.
An Explanation appended to Section 10A of the Bill clarifies that during this period, CIRP can still be initiated for any defaults arising before March 25, 2020.
Liabilities for wrongful trading
The Bill prohibits the Resolution Professional from filing an application before the NCLT to contribute personal assets of the director or a partner of the corporate debtor to the company assets.[Under normal circumstances, a director or a partner of the corporate debtor may be held liable to make personal contributions if despite knowing that the insolvency proceedings cannot be avoided, he did not exercise due diligence in minimising the potential loss to the creditors]
Some Members in the Parliament said that the Insolvency and Bankruptcy Code Bill is preventing voluntary Corporate Debtors from filing for bankruptcy. BJD MP Dr. Amar Patnaik pointed out that until June 2020, as many as 260 CIRP were initiated by Corporate Debtors themselves but they were prevented from proceeding due to the Bill.
NCP MP Praful Patel asked the Government to work upon creating more NCLT Benches and fill up the vacancies and the Resolution Professionals appointed under the Code must are not fully equipped and must be trained.