Finance Minister Nirmala Sitharaman on Sunday suspended filing of new bankruptcy cases for one year, and said debts related to the coronavirus pandemic will not be treated as default under the insolvency law temporarily. The move came as the Finance Minister detailed the fifth and final set of measures under the government's "Atma Nirbhar Bharat" package to tackle the damage caused by the coronavirus (COVID-19) outbreak and the weeks-long lockdown, which has crushed demand in an already-slowing economy.
The Finance Minister said no fresh insolvency cases would be initiated for up to a year, in a move to avoid a wave of bankruptcies from companies hit by the coronavirus outbreak.
Debt incurred by companies due to the economic fallout of the coronavirus outbreak will not be considered a default under the IBC law, the Finance Minister added.
She also said an ordinance will be passed to ensure that no new cases are filed during this period, depending upon the COVID-19 situation.
Nirmala Sitharaman reiterated that the government has already raised the minimum threshold for initiating proceedings under the Insolvency and Bankruptcy Code (IBC) from Rs 1 lakh to Rs 1 crore.
The government said the move is likely to benefit micro, small and medium-sized enterprises (MSMEs), and a special insolvency resolution framework for the segment will be brought in soon.
Days ago, the government had announced Rs 4.5 lakh crore in loan guarantees for small businesses, non-banking financial companies and power companies. It has also announced the establishment of two debt and equity funds amounting to Rs 70,000 crore to support stressed businesses.
The measures are part of a Rs 20 lakh crore fiscal and monetary package announced by Prime Minister Narendra Modi last Tuesday to support the economy.
The government's revenues have been hit hard as a nationwide lockdown imposed in March to prevent the spread of the novel coronavirus has pushed the economy to a standstil.