The Insolvency & Bankruptcy (Second Amendment) Bill, 2020, was introduced in Rajya Sabha and was passed on September 21st, 2020, to amend the Insolvency & Bankruptcy (Amendment) Ordinance, 2020 & Insolvency & Bankruptcy Code, 2016.
The code is significant legislation that provides a solution for Non-Performing Assets. It provides a collective mechanism within its framework for resolving insolvency while preserving the economic value in the process. It prescribes a time-bound process for resolving insolvency in companies as well as among individuals called CIRP.
The ordinance that was passed on June 5th, 2020, forbade the initiation of the insolvency proceedings for all the defaults arising during the coming six months (from March 25th, 2020) extendable up to one year as per the notification of the Central Government published in the official gazette. Sec 7, Sec 9, and Sec 10 of the Insolvency & Bankruptcy Code, 2016, were eliminated on various grounds by the ordinance.
What has Changed?
The ordinance provides that for defaults arising from March 25th, 2020, till the next six months (extendable up to one year by the Central Government, by way of notification in the official gazette), CIRP can never be initiated. It clarifies that for defaults arising during the six months from March 25th, 2020, the resolution process can never be initiated by either the company or its creditors. The central government may extend this period to one year through a notification in the official gazette. The Bill provides clarification that during this period, CIRP can still be initiated for any defaults that had arisen before March 25th, 2020.
A director or a partner of the corporate debtor may be held liable to make personal contributions to the company's assets if, despite knowing that the insolvency proceedings cannot be avoided, he does not exercise due diligence to minimize the potential loss of the creditor.
The Bill can be termed as progressive as the Bill provides aid to the companies in the time of the pandemic. The Bill promises to uphold the going concern characteristic of companies in the pandemic rather than to liquidate them at the earliest. Since IBC is not a recovery law, it can be observed that the main objective behind the ordinance is to save the companies.