11-06-2020

Presented by:
CA. Anil Goel
FOUNDER & CHAIRMAN

AAA INSOLVENCY PROFESSIONALS LLP AAA CAPITAL SERVICES PVT. LTD.

India’s largest Insolvency Professional Entity (IPE) India’s largest resolution and enforcement agents
under IBC under SARFAESI act

Head Office: E10A, Kailash Colony, New Delhi – 110048,

Email id: anilgoel@aaainsolvency.com, Mobile: 9811055148,
NEW DELHI I MUMBAI | KOLKATA | HYDERABAD | CHENNAI I BENGALURU I AHMEDABAD | LUDHIANA | RAIPUR | KOCHI |
BHUBANESHWAR I JAIPUR I KANPUR I NAGPUR I RANCHI I

IBC, FINANCIAL STRESS & POST

COVID-19 WAY FORWARD

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 11-06-2020

Insolvency and Bankruptcy Code (Amendment)

Ordinance, 2020 – w.e.f. 05/06/2020
• Section 10 A has been inserted which states that no fresh
application/s 7, 9 10 of the Code, can be filed against a corporate
debtor for any default arising on or after 25.03.2020 for a period
of six months but not exceeding 1 year from such date
• It has been provided that no application shall ever be filed against
any corporate debtor for the default occurring during said period
– Registrar may verify the date of default before accepting the
application.
• Further an explanation has been added that section 10A shall not
be applicable to any default committed before 25-03-2020

Insolvency and Bankruptcy Code (Amendment)

Ordinance, 2020 – w.e.f. 05/06/2020
• Where demand notices were already issued against
the corporate debtor
• Where demand notice not issued against the
corporate debtor but default is older than 25/3/2020
• No application to be filed by Resolution Professional
u/s 66 for fraudulent trading in respect of such default
as mentioned in newly inserted section 10A

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IMPACT OF COVID-19 ON ECONOMY

• Directly affecting production, supply and consumption
• Creating supply chain and market disruption
• Lockdown impacting various industries e.g. hospitality, travel, real estate,
automobile, entertainment, etc.
• Uncertainty over employment, business, future – no investment
• Decreased Business in service sector
• Disruption in logistics leading to no supply, no consumption
• Shortage of labour as they have moved backed to hometowns – a problem
more specific to India
• All the above having financial impact on business entities and financial
markets.

FINANCIAL IMPACT ON THE BUSINESS ENTITIES –

MORE SPECIFIC TO MSME
• Losses during lockdown period because of all the above reasons – expenses
with no business and loss of value of stocks also
• Disruption in fund flow as customers may not release payments
• Continued losses for some more time because of continuation of Covid-19 for
some more time
• Working capital paucity for immediate future business
• Expenses for Revival of business – restart cost
• Default by customers and debtors in payment or supply leading to more stress
in financials
• Default in payments to suppliers, workers, taxes, unsecured creditors and
unsecured creditors

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OPTIONS OR REMEDIES AVAILABLE WITH

MSME TO RESOLVE FINANCIAL STRESS
• Induct fresh capital from your savings
• Take further loan in case you are bullish on your business capacity to repay
• Use the shock absorbing capacity if you have built in the past
• Restructure the business with realigned expenses, change in product mix based
on the market dynamics, settle with creditors, and share some of losses with
them
• Avail all the benefits extended by Government regarding compliances, payment of
taxes, etc.
• File insolvency and seek resolution under IBC with necessary waivers, haircut, etc
and take the company back – however Personal Guarantee may be invoked
• File personal insolvency in case of default in Personal Guarantee and see discharge
from all liabilities and start the life afresh

OPTIONS OR REMEDIES AVAILABLE WITH MSME

AGAINST DEFAULTERS
• Settlement with defaulter for continued business, share the loss
• Taking advantage of cheques in hand, if available
• Stop supply of goods or services to disrupt the business of other party, in case your
supplies are such
• Using the provisions of Chapter V of the Micro, Small and Medium Enterprises
Development Act, 2006, if other party is not MSME
• MSME may make a reference to the Micro and Small Enterprises Facilitation
Council (“MSEFC”) and MSEFC may initiative on its own, action as it may deed
necessary.
• Provision for interest at 3% + bank rate after 45 days or credit period
• Initiate Insolvency proceedings against the defaulter, if the default is more than 1
Cr.
• IBC proceedings will be subject to the expected ordinance for suspension of IBC for
6 months – may be for new defaults

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OPTIONS OR REMEDIES AVAILABLE WITH SUPPLIERS,

WORKMEN OR EMPLOYEES OF MSME IN CASE OF DEFAULT
• Settlement with MSME for continued business, employment -
share the loss
• Stops supply of goods or services or work to disrupt the
business of MSME
• The creditor can take the advantage of cheques in hand with
them, if available
• Initiate Insolvency proceedings against MSME, if the default is
more than 1 Cr.
• IBC proceedings will be subject to the expected ordinance for
suspension of IBC for 6 months – may be for new defaults

OPTIONS AVAILABLE WITH BANKS OR SECURED

CREDITORS OF MSME IN CASE OF DEFAULT
• Restructure, reschedule or settle for some other terms for continued relationship or
for continuation of business
• Consent on settlement terms would be difficult as both sides would push for lower
loss to them
• All this has to be done within the extending period as announced by RBI for NPA
classification
• Action under SARFAESI Act for enforcement of security interest, collateral security and
Personal Guarantee
• IBC provisions can be invoked after the suspension period is over and if any
restructuring, etc is not resulting in standard restructured account.
• Bank can also invoke Personal Guarantees and can enforce collateral securities
• Banks and NBFCs can invoke insolvency and bankruptcy of personal guarantors to
corporate loans

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COMPLIANCE DEFAULTS AND GOVT RELAXATIONS

• NCLAT Suo Moto order dated 30-03-2020 that the
period of lockdown will be excluded from CIRP Period as
specified u/s 12 of IBC
• Any Stay order or interim order passed by NCLAT shall
continue till next date of hearing
• Hon’ble Apex Court have passed an Suo Moto order that
all the limitation period prescribed under any law shall
be extended from 15/3/2020 to the date of further
order passed by SC

COMPLIANCE DEFAULTS AND GOVT RELAXATIONS

• Thresh hold limit for IBC increased from 1 Lakh to 1 Cr (24/3/2020)

• Suspension of IBC for fresh initiation of insolvency proceedings up
to one year depending upon the pandemic situation
• Central Government excluded “defaults” post 25/3/2020
• Special Insolvency Resolution framework for MSMEs under section
240A of the Code to be notified
• MSME definition revised to meet long pending demand of the
Industry: Investment in Plant machinery and equipment increased
to 50 Cr and turnover limit added as 250 Cr – detailed notification
dated 13/5/2020.

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COMPLIANCE DEFAULTS AND GOVT RELAXATIONS

• IRAC or prudential norms relaxed – bank loans would

not be pushed to NPA for extended period of 6 months
• Income tax and GST compliance dates and payment of
taxes relaxed
• MCA/ROC relaxation was announced
• SEBI relaxation on various relaxation
• Other relaxations would also be offered for different
industry segments

IBC—NOW AND FUTURE

• Resolution Applicant would not be available for some time
• Fresh investment would be kept in hold and all will keep
cash
• Valuations would decline further and may impact all
Resolution Plans received and not approved
• Bidders would also not be available under for liquidation
sale or sale under Sarfaesi Act – all will wait for further
reduction in valuations
• Losses to banks would increase if any action is invoked e.g.
IBC or Sarfaesi

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 11-06-2020

The 3 Lakh Crore

Credit Guarantee
Scheme – Covid
Stimulus Package

Presented by – Adv. Aditya Gauri, Associate-Legal

Adityagauri@akgindia.in

Given the critical role of the MSME sector in the economy and in providing
employment, the government expects the proposed scheme to provide
immediate relief to the particular sector & other businesses by incentivizing
banks and other financial institutions to provide additional credit of up to Rs 3
Lakh Crore at low cost, thereby enabling MSMEs & other businesses to meet
their operational liabilities and restart their businesses. The scheme is open to
not only those who are registered as MSMEs but any business enterprise that
meets the conditions prescribed.

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The Scheme!
• The 100% collateral-free MSME loan is
being called the Emergency Credit Line
Guarantee Scheme (ECLGS)
• The Modi government will provide the
guarantee via the National Credit
Guarantee Trust Corporation (NCGTC), a
government trustee company registered
under the Companies Act.
• The loans will have a tenor of four years
and interest rates will be capped at 9.25
per cent or 14% for NBFCs.
• The borrowers have also been given a one-
year moratorium on payment of the
principal amount
• There will be a 100% credit guarantee
cover to Banks on principal and interest
and the scheme can be availed till October
31, 2020.

• Every eligible MSME or business

enterprise, gets a pre-approved
sanction limit of up to 20% of loan
Details of the outstanding as on 29th February,
2020.
Collateral free • This is in the form of additional
Emergency working capital term loan facility (in
case of banks and Financial
Credit Line Institutions), and additional term
loan facility (in case of NBFCs).
Guarantee • This is a special scheme to help small
Scheme (ECLGS) businesses battling the economic
impact of Covid-19 and includes
Pradhan Mantri MUDRA Yojana
(PMMY) borrowers.

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• All business enterprises or MSMEs that have a

combined outstanding loans across different
banks, NBFCs and FIs up to Rs. 25 crore as on
29.02.2020
• The annual turnover of the firm is up to Rs. 100 -
250 crore for FY 2019-20 is eligible for the
Scheme.
• Proprietorship, partnership, registered company,
trusts and Limited Liability Partnerships (LLPs) are
all eligible under the Scheme, but only the loans

Eligibility taken for the business is being covered. Any loan

taken by a promoter or director in his personal
capacity will not be covered under the scheme.
• Scheme is valid for existing customers of a bank,
NBFC or FI.
• The loan account should be less than or equal to
60 days past due as on 29.02.2020
• The borrower has not been classified as SMA 2 or
NPA by any of the lender as on 29.02.2020.
• A borrower must also be registered under GST,
unless the business is not required or exempted
from having a GST registration.

Amount that can be borrowed

• The maximum amount eligible under this scheme in the form
of additional working capital term loan facility is set at 20%
of the total outstanding loans up to Rs 25 crore as on
29.02.2020.
• To arrive at the total outstanding, only on-balance sheet
exposure like an outstanding amount in working capital loan,
term loan and working capital term loans will be taken.
• In case a borrower has loans with multiple lender, the
scheme can be availed either through one lender or multiple
lenders.
• The lender will check with credit bureau to get the correct
picture of the overall outstanding of a borrower.

INTEREST
Banks and FIs link their lending rate to one of the external
benchmark rates prescribed by RBI plus 1% subject to a
maximum of 9.25% per annum. Similarly, NBFCs cannot charge
more than 14% as interest for the loans under this scheme

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• To keep things simple, the scheme has an automatic pre-

approve mechanism, which means you do not have to
approach the lender for the loan.
• If a borrower is eligible, a lender will automatically offer
it.

How do
• The scheme provides an 'opt-out' option where the
borrower may not avail the scheme, while someone who
wants to take the benefits of this scheme will have to go

you Apply •
through the proper documentation process.
There will be no pre-payment charge if a borrower
wants to repay early.
• There will also be no processing fee for such loans.
• A separate loan account will be opened, which is distinct
from your current loan accounts. In that sense, the
scheme is not a top-up on your existing loan.

• The MSME sector contributes in a significant way to

the growth of the Indian economy and its 6.3 crore
units is often considered as the backbone of the
nation. It had a share of around 30 percent in
nominal GDP in 2016-17 and the share of the sector
in total manufacturing output was even higher at 45
percent
• The Economic Stimulus Package will most likely have

Impact ! a significant impact in helping MSMEs pay salaries

and keep their heads above the water even as the
economy slows down.
• As per the FM, on a single day i.e 01.06.20, PSBs
have sanctioned collateral-free loans worth Rs 3,200
Crore through the ECLGS.
• MSMEs based in over 3,000 Tier-II towns were
covered in one day under the loan scheme that will
enable them to pay salaries, rent, and restocking
expenses.

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Thank

AAA INSOLVENCY PROFESSIONALS LLP

Registered Office: E-10A, Kailash Colony, Greater Kailash-1, New Delhi – 110048 |
Phone : 91 11 4666 4600 (100 lines) | E-mail: info@aaainsolvency.com I www.insolvencyandbankruptcy.in

Mumbai | Chennai | Kolkata | Bengaluru | Hyderabad | Ahmedabad | Bhubaneswar |

Kochi | Ludhiana | Raipur | Ranchi Nagpur | Jaipur | Kanpur

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