InvestorQ : What is the implication of the government extending the insolvency scheme?
Mahima Roy made post

What is the implication of the government extending the insolvency scheme?

Answer
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diksha shah answered.
1 month ago


That was something that was widely anticipated. On Thursday, the government announced extended suspension of insolvency proceedings against companies for another 3 months till December 24. This will protect them from any defaults after March 24.

It may be recollected that in May 2020 the government had decided to keep the IBC in suspension for a period of six months effective from March 24 to ease the pressure on beleaguered businesses. The 6-month suspension of the IBC expired on 24 September.

However, this suspension will anyways not be applicable to defaults that occurred prior to March 24. That would mean that any resolution would now begin only after December 24 and that too could be mired in prolonged legal arguments on the applicability of IBC.

The argument given by the government for this extension is that for any IBC proceedings you need an interested party to buy the stressed assets of the defaulting company. However, that appeared elusive considering the lockdown and the lag effect of COVID-19.