Context: The Insolvency and Bankruptcy Code (Second Amendment) Bill, 2020 has been passed by the Rajya Sabha
- It amends the Insolvency and Bankruptcy Code, 2016.
- The Code provides a time-bound process for resolving insolvency in companies and among individuals.
Insolvency is a situation where individuals or companies are unable to repay their outstanding debt.
- The Bill seeks to temporarily suspend initiation of the corporate insolvency resolution process (CIRP) under the Code.
- It replaces the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2020 promulgated on June 5, 2020.
Prohibition on the initiation of CIRP for certain defaults
- When a default occurs, the Code allows the creditors of the company or the company itself to initiate CIRP by filing an application before the National Company Law Tribunal (NCLT).
- The Bill provides that for defaults arising during the six months from March 25, 2020, CIRP can never be initiated by either the company or its creditors.
- The central government may extend this period to one year through notification.
- The Bill clarifies that during this period, CIRP can still be initiated for any defaults arising before March 25, 2020.