Extension of IBC suspension comes with added risks
Extension of IBC suspension comes with added risks

In a major relief for several financially stressed companies amid the pandemic, the government has again extended the suspension on fresh insolvency cases for three months, but experts fear this extension may also lead to an economic cost of preventing resolution, leading to more stressed assets.

On Tuesday, in an exercise of the powers conferred by section 10A of the Insolvency and Bankruptcy Code, 2016 (31 of 2016), the Centre notified a further extension of three months from December 25, 2020.

Charanya Lakshmikumaran, Partner with Lakshmikumaran & Sridharan Attorneys, noted that the final extension possible under the current language of the Section, until March, 25 2021 has now also been notified by the Central Government.

She also said that while the suspension until March 2021 was expected, any further suspension will pose significant challenges.

"Unless the Act is amended, it is unlikely that a further extension of the suspension of the IBC post March 2021 can occur by a government notification," she said.

Additionally, the economic cost of preventing resolution of stressed companies and keeping capital and lenders' money locked-in will heavily weigh on the government, Lakshmikumaran added.

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