The Lok Sabha today passed the Insolvency and Bankruptcy Code (Second Amendment) Bill, 2020, by voice vote.
The Bill was passed by the Rajya Sabha on September 19, 2020.
It seeks to amend the IBC Code 2016 and temporarily suspend initiation of the Corporate Insolvency Resolution Process (CIRP), for a period of one year.
While introducing the Bill, Finance Minister Nirmala Sitharaman explained that the Bill shall temporarily suspend initiation of corporate insolvency resolution process for a period not exceeding one year, from March 25, 2020, to ease the financial stress being faced by companies during the extraordinary economic situation caused by the COVID-19 pandemic.
The Bill was supported by many Members however some of the concerns raised during discussion in the Rajya Sabha were reiterated during the debate in the Lower House today. The same may be read here.
Informing the house about the success of the insolvency law, BJP MP Nishikant Dubey informed the House that the recovery rate of debts from Lok Adalat mechanism was 5.3%; from DRT mechanism was 3.5% whereas under the IBC Code was more than 42%.
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]
Click Here To Download Bill