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Photo: iStock
Photo: iStock

Opinion | Cost of IBC relief

It would be unfair for healthy firms to face dissolution for no fault of theirs. To that extent, relief from the IBC was indeed needed

The government is expected to suspend some provisions of the Insolvency and Bankruptcy Code (IBC) that trigger legal proceedings against defaulters. Reports suggest that once this is done, businesses that otherwise would have been pushed into the usual court process would be protected from such action for six months, perhaps even up to a year. This would offer companies a reprieve from difficulties arising from the covid-19-induced lockdown. Many have suffered an abrupt cut-off of cash flows, hurting their ability to service loans. It would be unfair for healthy firms to face dissolution for no fault of theirs. To that extent, relief from the IBC was indeed needed.

However, a few bankers have expressed concerns about the possible misuse of such protection. Since a broad shield seems to be on offer, businesses that were floundering even earlier and deserved to be placed in new hands, or have their assets and resources re-allotted, may be able to get away. At least for the time being. This would be unfair to creditors. Lenders have struggled to lighten their burden of loans gone bad. Let’s hope the latest IBC tweaks do not worsen their woes.

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