Welcome breather – Special Report News – Issue Date: Jun 1, 2020

Clipped from: https://www.indiatoday.in

The government has eased the regulatory burden to allow corporate India to focus on business revival.

Worldwide Push: PM Modi at the Bloomberg Global Business Forum

As part of the stimulus, finance minister Nirmala Sitharaman announced a number of reforms aimed at easing the business environment. These include changes in the trigger for insolvency proceedings and decriminalising provisions of the Companies Act.

THE REFORMS

Violations of many provisions of the Companies Act will be decriminalised, including shortcomings in CSR reporting, filing defaults and so on. Many offences will now be resolved via internal adjudication.

COVID-19-related debts will be excluded from the ‘default’ category under the Insolvency and Bankruptcy Code (IBC) for one year. The default threshold to initiate insolvency proceedings has been raised to Rs 1 crore.

Private companies will be allowed direct listing in permissible foreign jurisdictions. Those that list non-convertible debentures on exchanges will not be regarded as listed companies.

THE RATIONALE

The Company Law Committee had made a case for the softening of 46 penal provisions under the existing law. The recommendations were to remove criminality/ restrict punishment to only a fine, among others.

Firms had to be prevented from being classified as defaulters due to losses resulting from the lockdown. The higher threshold for insolvency proceedings will insulate MSMEs.

In the new economic environment, many companies will need access to deeper pools of capital.

THE SCOPE

The easing of penal provisions for non-compliance will allow corporate India to focus on revival and will ease the burden on courts and tribunals.

Raising the default threshold to Rs 1 crore will prevent mass insolvencies as a result of the lockdown.

THE gap

Businesses are uncertain if the tweaks in the IBC default thresholds are permanent, since no expiry date has been announced for this.

Veena Sivaramakrishnan, partner at Shardul Amarchand Mangaldas & Co. says more is to be done. “Questions like why should an entity not refer itself to insolvency, what is the parallel regime of resolution and what is the framework for creditors to come up with a viable resolution plan outside of the IBC, remain unanswered,” she says.

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