No Case to Stop Voluntary Insolvency

Context: The recent government’s move to hold the Insolvency and Bankruptcy Code (IBC) in abeyance for one year on account of Covid-19, will have an unintended consequence.

Consequences

• Restrained acquisitions: Companies with reserves on the lookout for acquisitions but will be restrained. 
• Prevent Voluntary Insolvency: the distressed companies will be prevented from voluntary bankruptcy causing delays and unused resources.

• A timely resolution will ensure the rapid deployment of resources trapped in the insolvent company.

Way forward

• Government has rightly exempted all COVID related debt from the definition of default under IBC code to help recover and bring in behavioural change in the debtor, however allowing fresh insolvency resolution will help further.