“Suspension of initiating Corporate Insolvency Resolution Process on defaults post 25th March 2020 has served its objective and may not be extended further,” said Anil Goel, founder and chairman, AAA Insolvency Professionals. “The Insolvency and Bankruptcy Code is one of the stellar pieces of reforms of the current government, and it should not remain suspended for longer,” he said.
The Ministry of Corporate Affairs did not reply to ET’s query until the publication of this report. A six-month suspension was first introduced in June for missing repayments or debt defaults arising in the aftermath of the virus-induced lockdown on March 25, 2020. It was supposed to end on September 25 but extended up to December 25. Finally, the recess was further extended by another three months.
There could well be a potential pool of assets worth Rs 1.8 lakh crore, which are exposed to the risk of reference to NCLT, spread across many borrowers. “The stress is reflective in the latest financial stability report by RBI,” said Anil Gupta, vice president and sector head at ICRA Ratings. “The suspension could be lifted but maybe, with a few tweaks. Small businesses have been facing tough times since the peak of the lockdown although the government has raised the bar for them.”
Between August and September last year, about Rs 1.80 lakh crore of loans given to large non-government and non-financial sectors have delayed repayments falling under categories where borrowers missed repayments up to 90 days, which are known as SMA 0, SMA 1 and SMA 2 in market parlance. The threshold of taking any company to NCLT is pegged at Rs 1 crore, which some expect may be tweaked. Last June, North Block provided for Rs 3 lakh crore collateral-free loans for MSMEs via the Atmanirbhar package. This has broadly covered about three-fourths of such companies battling an adverse business environment.
Some, however, argue that MSMEs may use the IBC Code for restructuring the financial stress, especially in view of the enlarged scope of for them, which came into effect on July 1 last year. “It has also been experienced that more defaults are occurring in the absence remedy available to operational and financial creditors under IBC,” Goel said. The threshold limit for MSME was increased to Rs. 250 crore of turnover in the preceding year and investment in plant & machinery or equipment to Rs. 50 crores.
