The government had already announced the increase in the threshold limit for triggering insolvency to Rs 1 crore from Rs 1 lakh under IBC, more relief is likely for the MSMEs. According to experts, government could allow pre-packaged insolvency resolution plans, popular in the US and the UK, for MSMEs. Such a scheme involves an agreement by the stressed company and its creditors with a buyer before initiating insolvency proceedings.
Of the total 221 resolved cases under IBC, 44 per cent amount of debt has been recovered since the inception of the law in 2016. The total amount of claims admitted are over Rs 4.13 trillion, of which the total realisable amount is around Rs 1.84 trillion.
IBC is considered one of the landmark reforms undertaken by the government as a measure for viable companies to regain its lost glory and survive as a going concern.
While the suspension of IBC for companies under stress due to Covid-19 might give them a new lease of life it could also have far reaching consequences.
“Suspending IBC in entirety, while it looks like a relief to corporates, could actually lead to the corporates being in a state of flux, as all creditors coming together without the sword of IBC on them has never really won the popularity vote,” said Veena Sivaramakrishnan, Partner, Shardul Amarchand Mangaldas & Co.
Till February, 13,566 cases involving a total amount of Rs 5.01 trillion were withdrawn before admission under provisions of IBC.
Experts believe that the benefit of statutory moratorium would be lost to a company because of IBC suspension. “It may alternatively result in myriad recovery cases and enforcement of security cases being filed against the said company, thereby burdening the already overburdened courts in India,” said Diwakar Maheshwari, dispute resolution partner, Khaitan & Company.