Many companies are in default due to force majeure clauses: IBBI Chief

Insolvency and Bankruptcy Board of India chairman M S Sahoo
Companies are facing bigger risks today than ever before and some are on the verge of default, not because of market pressures but because of force majeure circumstances, Insolvency and Bankruptcy Board of India chairman M S Sahoo said on Thursday.

Finance Minister Nirmala Sitharaman had, in light of the Covid-19 pandemic, suspended initiation of corporate insolvency resolution processes for six months starting March 24 to stop several companies from being forced into insolvency. Many of these enterprises were on the verge of defaulting due to the invocation of force majeure. The exemption is up for review. 

Addressing an Assocham seminar on India Corporate Governance Stewardship, Sahoo said that Insolvency and Bankruptcy Code had taken corporate governance to new heights in the country by providing a new lifeline to rescue a company when it was in deep distress. 

He said that the average life of S&P 500 companies has reportedly reduced from 90 to 18 years over the last century and that a company’s life today is shorter than a human’s. 

Quoting a 2015 research, Sahoo said that the average life of a publicly traded company, taking into account acquisitions, mergers and bankruptcy is about 10 years. 

“Because companies are modern means of producing goods and services and that they provide employment for posterity, it is important to save their lives.”

Also addressing the conference Anurag Thakur, minister of state for corporate affairs said that how companies handle the pandemic will determine how customers and employees treat them as a brand. 

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