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In order to prevent most companies from being pushed into the insolvency proceedings due to the economic crisis, debt default triggered by Covid-19, The government decided to issue an ordinance which suspends three sections of the Insolvency and Bankruptcy Code.
The filing of the corporate insolvency resolution is to be suspended for a period of six months after March 25, 2020 which is also the day the first lockdown was announced to contain the transmission of Covid-19.
This suspension i s to remain for a period of six months or ‘such further period which does not exceed one year. This comes in the wake of the Covid-19 lockdown as it has led to an enormous dip in the economy leading to financial instability and deteriorating health of the economy. All the work places and industries had been shut due to the lockdown which cut down on the production, demand and supply leading to a massive slowdown of the economy.It is also to be noted that in case of default by the corporate person, it is nearly impossible to find application that rescue the person from such default in discharge of debt obligation. The President gave his assent to such an ordinance in order to maintain some stability in the economy and to ensure that the companies are not forced into insolvency.
The Insolvency and Bankruptcy Code, 2016, is a bankruptcy law that aims to combine all existing frameworks to make a single law on this subject. The sections that were being suspended by the Insolvency and Bankruptcy Code are section seven, nine and ten. This step was taken by the government to provide relief to the people who were borrowers being pulled into insolvency at the time of the challenges and impact of the lockdown.
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