Govt extends suspension of new insolvency cases by 3 months

The government extended the time period, in which defaults by companies cannot be grounds for initiating insolvency proceedings, by three months, according to a notification by the Corporate Affairs Ministry.

The government, in June, issued an Ordinance preventing the initiation of insolvency proceedings against companies for defaults in the six-month period starting March 25 under the Insolvency and Bankruptcy Code (IBC).

L Viswanathan, partner at Cyril Amarchand Mangaldas, said the extension was in line with the time given to lenders and borrowers to restructure loans by the RBI, and “therefore if a restructuring is not initiated within the timeline stipulated by the RBI, lenders will have the right to initiate insolvency proceedings for future defaults.”