While addressing the press conference via video conferencing on March 24, 2020, the Minister of Finance and Corporate Affairs, Smt. Nirmala Sitharaman announced much-needed relief measures in order to prevent triggering of insolvency proceedings against small and medium enterprises that are currently facing the heat of coronavirus pandemic.
The following are the main highlights of the press conference related to ease of doing business for companies in the current situation:
Increase in threshold limit to INR 1 Crore
The significant relief that has been implemented straightaway by the Central Government is that the threshold limit under IBC (Insolvency and Bankruptcy Code) of default under Section 4 of the Insolvency and Bankruptcy Code, 2016 to Rs. 1 crore (from the existing threshold of Rs. 1 lakh), for triggering the Corporate Resolution Insolvency Process (CIRP). The Section 4 of the IBC is reproduced under –
“4. (1) This Part shall apply to matters relating to the insolvency and liquidation of corporate debtors where the minimum amount of the default is one lakh rupees:
Provided that the Central Government may, by notification, specify the minimum amount of default of higher value which shall not be more than one crore rupees.“
It is a welcome change, and a relief to small and medium scale industries, apart from the same such a measure would substantially decrease the workload of the National Company Law Tribunal.
Proposed measure to be implemented if COVID outbreak continues beyond April 30, 2020
It has been further notified that if the present situation of coronavirus crisis continues beyond April 30, 2020, the Central Government may suspend Sections 7, 9 and 10 of the Insolvency and Bankruptcy Code, 2016 (IBC) for a period of six months so as to stop companies at large from being forced into insolvency proceedings in such force majeure causes of default.
- No additional fees will be charged for late filing during a moratorium period from April 1 to September 30 in respect of any document, return, statement etc, required to be filed in the MCA-21 Registry, irrespective of its due date.
- The mandatory requirement of holding meetings of the board of the companies within prescribed interval provided in the Companies Act (120 days), 2013, shall be extended by a period of 60 days till next two quarters, i.e. till September 30.
- Applicability of Companies (Auditor’s Report) Order, 2020 shall be made applicable from the financial year 2020-2021 instead of from 2019-2020 notified earlier.
- Independent directors not attending single board meeting during the current fiscal will not be considered as violation of Companies Law.
- Requirement to create a deposit reserve of 20 per cent of deposits maturing during the financial year 2020-21 before April 30 2020 has been allowed to be complied with till June 30, 2020 while requirement to invest 15 per cent of debentures maturing during a particular year in specified instruments before April 30 may be done so before June 30, 2020.
- Newly incorporated companies which are required to file a declaration for commencement of business within six months of incorporation will be given an additional six months.
- Non-compliance of minimum residency in India for a period of at least 182 days by at least one director of every company, under Section 149 of the Companies Act, will not be treated as a violation.
- During the press conference, the Minister also announced that no interest, penalty, or a late fee will be levied on companies with a turnover less than INR 5 Cr for filing goods and service tax (GST) returns for March, April, and May 2020. The last date for linking Aadhaar with PAN card has also been extended to June 30, 2020.
Such a remarkable step would enable the Companies to firstly focus on stabilising their business operations, without bothering about impending threat of Insolvency from Debtors. The raise in the amount of the default, will also effectively decrease workload on the Judiciary, as stress for businesses and individuals is set to rise in these testing situations. At the moment, much cannot be said about rolling back of the notification, however the possibility of reverting back to the old threshold may be a possibility, if required.
The detailed list of relief measures announced by the Ministry of Finance can be accessed here