Threshold enhanced with force majeure awaited in Insolvency & Bankruptcy Code(IBC) due to COVID-19
In order to check the economical slowdown in the business, the Finance Minister on 24th March,2020 has announced various reliefs and relaxations in IBC due to the pandemic outburst of Covid-19 as below:
1.Threshold limit enhanced– The lockdown and pandemic outburst of corona may result for many default as business cycle has reached to almost a halt. This led the Finance Minister to raise the existing Rs. 1 Lakh to Rs. 1 Crore.
This will prevent triggering of Insolvency against MSMEs in particular so that further undue hardship can be contained. It is being implemented with an immediate effect.
It must be also noted that of late there were reports that a high level committee led by senior Government officials were to recommend the enhancement of threshold limit for MSME to Rs 5 lakhs and for others it shall be Rs 50 lakhs. Hence, this announcement by the finance minister can be considered as a temporary workout to check insolvency amongst MSMEs.
2.Force Majeure Can be invoked in IBC– The current situation of Covid – 19 shall be observed and if it continues even after 31st April, 2020, then Section 7, 9 and 10 of the I&B Code shall be suspended for a period 6 months.
In that case, due to the invocation of force majeure, companies can be stopped from moving forward against corporate debtor companies under the IBC.This will be a welcome step so as to support the business and prevent them going into the dark sea of insolvency during the hard times of covid-19.