India News | Rescuing Viable Firm More Important Than Failing to Liquidate Unviable Co Amid COVID-19: Sahoo
Get latest articles and stories on India at LatestLY. Rescuing a viable firm is far more important than failing to liquidate an unviable company in the current coronavirus crisis, IBBI Chairperson M S Sahoo has said and asserted that limited suspension of the insolvency law ensures it is firmly grounded in the service of the economy.
New Delhi, Jul 21 (PTI) Rescuing a viable firm is far more important than failing to liquidate an unviable company in the current coronavirus crisis, IBBI Chairperson M S Sahoo has said and asserted that limited suspension of the insolvency law ensures it is firmly grounded in the service of the economy.
Amid economic disruptions due to the coronavirus pandemic, the government has suspended initiation of resolution process with respect to defaults arising during the COVID-19 period under the Insolvency and Bankruptcy Code (IBC).
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The suspension of the provisions of the IBC, which provides for a market-linked and time-bound resolution of stressed assets, could be extended by up to one year.
Asserting that the purpose and the direction of the insolvency law have now taken stronger roots, Sahoo said "the limited suspension, in fact, ensures that the law is firmly grounded in the service of the economy."
The Insolvency and Bankruptcy Board of India (IBBI) is a key institution in implementing the Code.
While noting that the insolvency law typically aims to rescue a viable firm and liquidate an unviable firm, the IBBI chief said in the present circumstances, there are two policy choices.
"If insolvency framework is suspended, unviable firms would not be liquidated; and if it is not suspended, viable firms would be liquidated. The first choice fails to liquidate an unviable firm, which can be rectified in the following quarter or year.
"The second choice liquidates a viable one forever, which cannot be undone. Rescuing a viable firm is, therefore, far more important than failing to liquidate an unviable one during the current crisis," Sahoo told PTI in an e-mail interview.
Further, he said the second choice provides a breathing space, when many companies, which are failing solely on account of COVID-19, would bounce back on their own as soon as normalcy is restored.
"Or they would at least recalibrate their operations and businesses to an 'all-new normal'. The limited suspension, in fact, ensures that the law is firmly grounded in the service of the economy," he added.
In June, the IBC (Amendment) Ordinance, 2020 was issued to prevent companies from being pushed into insolvency proceedings for their failure to service debt obligations on account of the pandemic-induced stress.
For now, entities cannot seek resolution under the IBC for any default arising on or after March 25, 2020. On March 25, the nationwide lockdown to curb spreading of coronavirus infections came into force.
However, corporate insolvency resolution process (CIRP) can be initiated for defaults existing before the onset of COVID-19 and for defaults arising after it recedes. Also, applications already filed for initiation of CIRP, ongoing CIRPs, corporate liquidations, and voluntary liquidations have not been suspended.
"What has been suspended is initiation of CIRP in respect of a default arising during the COVID-19 period only, which could be six months to one year. The rest of the Code is in operation. This is like a precise keyhole surgery matching the need," Sahoo said.
According to him, the insolvency law's primary objective is to rescue the lives of companies from natural death arising from competition and innovation in normal circumstances.
"With demand dwindling and supply chains hit around the globe in the wake of the COVID-19 pandemic, many companies, which were doing well earlier, are now reeling under stress. Some of them are at the brink of default, not because of market pressures, but because of force majeure circumstances.
"The insolvency law must continue to rescue such companies with renewed vigour," he said.
On efforts made by the IBBI during the April-June quarter considering the impact of lockdown on economic activities, Sahoo said it has taken an accommodative stance in various matters.
Among other measures, several regulations were amended to allow additional time for various compliances and filings by insolvency professionals.
The IBBI also amended several regulations to exclude the period of lockdown imposed by the central government in the wake of COVID-19 outbreak for the purposes of the timeline for any activity, subject to the overall time limit provided in the Code.
"It (IBBI) promoted use of technology by IPAs (Insolvency Professional Agencies) and RVOs (Registered Valuer Organisations) for delivery of educational programmes and continuing professional education," he added.
(The above story is verified and authored by Press Trust of India (PTI) staff. PTI, India’s premier news agency, employs more than 400 journalists and 500 stringers to cover almost every district and small town in India.. The views appearing in the above post do not reflect the opinions of LatestLY)