Changes to bankruptcy legislation due to coronavirus
Many countries over the world react differently to the coronavirus and use quite different means to overcome the negative economic consequences of the introduction of various restrictions in quarantine.
Among the most common measures already taken in a number of countries are amendments of bankruptcy legislation. Thus, the legislator tries to adapt the known mechanisms to the difficult situation in the economy and find new forms of more effective application of bankruptcy proceedings. The most common approach is to suspend the initiation of new bankruptcy proceedings.
Such proposals are now being considered in India. The package of legislative proposals, initiated by the government, contains proposals to amend the Insolvency and Bankruptcy Code to suspend the initiation of new bankruptcy proceedings for a period of one year. This is explained by the fact that companies in a state of crisis must be able to restore their solvency by themselves, without government intervention. In addition, the government is considering excluding debts arising from restrictive measures from the list of grounds for creditors to use enforcement measures to repay them.
At the same time, the Indian government is considering some means under bankruptcy law aimed at resolving of problems with debts of small and medium-sized enterprises. It is also planned to increase the debt threshold needed to initiate bankruptcy proceedings. Experts in this country believe that it is necessary to significantly revise the provisions of the Code and consider the possibility of more serious or radical changes. Known worldwide bankruptcy expert Sumant Batra, a member of the World Bank’s Bankruptcy Task Force, said India needed a revolutionary rethinking of insolvency law, not just a one-year pause in initiating of new bankruptcy cases. He believes that a new approach to debt management is needed, which should encourage banks and public sector institutions to actively participate in rescuing businesses.
Oleksandr Biryukov, Counsel, LCF Law Group