Insolvency and Bankruptcy Code (IBC) To Come Back To Life Again. What To Expect?

March 19, 2021 0 By boss


Later this year, there may well be a number of applications before the NCLTs basis defaults and disputes in the 12 months. We’re involved in a few that may be filed after the suspension is lifted and there are conversations in other cases. But whether these are just pressure tactics and whether they’ll be admitted by NCLTs quickly- is a question mark.

There are a few issues that could arise.

There could be cases where a borrower has defaulted only during the Covid period and they may start paying April onwards. Typically, the loan documentation will say that for any payment by the borrower, the allocation will be at the discretion of lenders. So, let’s say there was a payment default in September 2020 and the next one is due in April 2021. Any payment that’s made in April, the lender will set it off against the first default and say that the April payment is still outstanding. Therefore, you’ve defaulted post-IBC suspension for which insolvency proceedings can be initiated.

Another situation is a simple one- where a borrower defaulted during the suspension period and continues to after March 26 as well. These can easily be taken to IBC.

Then there could be defaults that may not have been called out during the IBC suspension period and proceedings can be initiated for those. For instance, say an Indian company has obligations for an offshore group company’s debt. And there’s a payment default by the offshore company during the suspension period. The onshore obligation wasn’t triggered i.e. called out as default. The offshore creditor could call upon that obligation after March 26, 2021, when the suspension is lifted and on non-payment take the Indian company to IBC. So, the default in India will happen on March 26.

These are some of the issues and arguments that may play out in courts.


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