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Amendments in Bankruptcy Code likely to provide relief to firms affected by lockdown: Reports

Officials said on Monday that the new law will not spare those companies which are already facing bankruptcy proceedings.

SNS | New Delhi |

A major relief comes for the companies facing a crisis in their business due to the lockdown as the government is likely to come up with a new law to spare such companies. The cabinet is likely to approve an ordinance – for the companies hit by the coronavirus lockdown bankruptcy — when it meets next.

Officials said on Monday that the new law will not spare those companies which are already facing bankruptcy proceedings.

As per the Insolvency and Bankruptcy Code, 2016, companies for a delay in repayment of loans for even a day could be labelled as a Non-Performing Asset.

Now, under the new clause which is expected to be introduced by the government, the bankruptcy proceedings will be paused for the next six months, which could be further extended depending upon the economic crisis due to the lockdown.

It will bring a big relief to the companies which are facing bankruptcy due to the lockdown, but it will not be applicable for those companies which are already undergoing insolvency and bankruptcy and are in the ambit of this law.

Lockdown has brought an ill-effect on several companies as they have fallen behind in contracts and payments. Under the usual circumstances, they would have been liable for action by creditors.

It was reported that the small companies are struggling with salaries, loan dues and Goods and Services Tax (GST) and becoming non-performing assets.

In a significant remark for the small scale industries and those industries affected due to the nationwide lockdown, Finance Minister Nirmala Sitharaman announced that if the lockdown extends further from April 30, then the government would consider the suspension of certain sections of the Insolvency and Bankruptcy Code for six months. The step would shield the companies from creditors and promoters who would not be able to start Insolvency proceedings against them.

As reported by NDTV, there are three more orders planned to clear the new labour codes.

The 21-day lockdown, imposed to contain the deadly coronavirus, which is scheduled to end on Tuesday will be extended till April 30. But this time, the lockdown will not be same for businesses in the country as the Government has decided to allow 15 various industries to commence operations but with minimum manpower and distancing norms on a single shift basis.