Executive Summary:

• Suspension of fresh insolvency proceedings by a creditor for the defaults committed by a corporate debtor on or after March 25, 2020, for a period of 6 months i.e. September 24, 2020.
• Suspension of fresh insolvency proceedings by a corporate debtor for a period of six months.
• The resolution professional shall not file an application with the NCLT to order director or partner of the corporate debtor to make contribution to the assets of the corporate debtor in respect of defaults against which initiation of IRP has been suspended.

Detailed Analysis:

Understanding Section 7, Section 9 & Section 10 of the IBC 2016:

Section 7: Initiation of corporate insolvency resolution process (CIRP) by financial creditor:

A financial creditor may himself or through a joint application can file application for initiating insolvency proceedings against corporate debtor if the amount of default exceeds the threshold limit of INR 1 Crore.

Financial creditor means a person to whom a ‘financial debt’ is owed e.g. lenders.

Section 9: Initiation of corporate insolvency resolution process (CIRP) by financial creditor:

An operational creditor may himself or through a joint application can file application for initiating insolvency proceedings against corporate debtor if the amount of default exceeds the threshold limit of INR 1 Crore.

Operational creditor means a person to whom a ‘operational debt’ is owed. E.g. provider of goods and services.

Section 10: Initiation of corporate insolvency resolution process (CIRP) by corporate applicant:

It provides where a corporate debtor has committed a default, a corporate applicant thereof may file an application for initiating corporate insolvency resolution process with the Adjudicating Authority.

Corporate applicant means corporate debtor itself.

Relaxations introduced by IBC Ordinance, 2020:

Impact of Relaxations:

1. Impact on corporate debtors: Prevention corporate debtors from being pushed towards insolvency proceedings due to experiencing stress on account of unprecedent situation.
   
   It shall also be noted that insertion of section 10 A may lead to some difficulty in identification of entities under stress irrespective of COVID 19. For example, an entity which somehow managed to keep their account standard would default now and be exempted from insolvency proceedings forever.
   
   
2. Impact on creditors: Any defaults that occurred before March 25, 2020 can still be resolved via bankruptcy code. However, creditors can not initiate insolvency proceedings for defaults committed by corporate debtors from March 25, 2020, for a period of six months.
   
   It shall be noted that bankers (lenders) can proceed to take the corporate debtor to bankruptcy court under RBI’s June 7 Circular for NPA resolution without following the IBC route.