A new law to spare companies hit by the coronavirus lockdown bankruptcy is expected to be cleared by the government through a special order or ordinance.
The cabinet is likely to approve the ordinance when it meets next. The relief will not apply for companies already facing bankruptcy proceedings, officials said on Monday.
A new clause in the Insolvency and Bankruptcy Code, 2016, will pause bankruptcy proceedings for the next six months, and the reprieve can be extended, depending on how the pandemic progresses. This means companies facing difficult times will not slip into the red for the moment, but will not be applicable for companies already undergoing insolvency and bankruptcy
Under the law enacted in 2016, even a day's delay in loan repayment could push the company towards being labelled a Non-Performing Asset.
Due to the prolonged lockdown, several companies have fallen behind in contracts and payments, which would, under usual circumstances, leave them liable for action by creditors. There are worries of several smaller companies, struggling with salaries, loan dues and Goods and Services Tax (GST) becoming non-performing assets.
Finance Minister Nirmala Sitharaman had announced that if the current situation - the nationwide shutdown to slow the spread of coronavirus -- continued beyond April 30, the government would consider suspending certain sections of the Insolvency and Bankruptcy Code for six months, so that creditors and promoters cannot start insolvency proceedings against companies.
Three more special orders are planned to clear new labour codes.
To restart an economy devastated by the virus lockdown after a record slump, the government is planning to reopen certain sectors.
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