Impact of COVID 19 on Recovery Reforms
The economic downfall of 2008 prompted some of the most high-profile bankruptcies in U.S. history, including those of Lehman Brothers, General Motors, and Washington Mutual. Taking a look at the 2008 financial crisis faced by the United States of America, restructuring and Chapter 11 played anepic role in aiding the country recover. U.S. bankruptcy courts and debt restructuring specialists were faced with the largest wave of corporate defaults and bankruptcies in history. In 2008 and 2009, $1.8 trillion worth of public company assets entered Chapter 11 bankruptcy protection - almost 20 times the amount during the prior two years. During the crisis, the amount of debt that needed to be restructured posed a seemingly insurmountable challenge.
At one point, a whopping $3.5 trillion of corporate debt was distressed or in default. A significant portion of the private equity industry, was widely believed to be on the verge of extinction. Now, in the face of the even larger crisis brought about by the coronavirus, other big companies are bracing for a similar fate. The United States of America in dire time of stress and economic fallout did not amend or do away with Chapter V, how successful would the Indian government be in saving the economy by suspending section 7, 9 and 10 of IBC.
The impact of the novel coronavirus outbreak on the economy would depend on the gravity, extent and diffusion of the calamity, the Reserve Bank of India said in the minutes of its emergency Monetary Policy Committee (MPC) meeting in March.
Currently, the government has taken certain steps to prevent the initiation of CIRP at a large scale and to avoid any frivolous filings. The Ministry of Corporate Affairs vide a notification dated March 24, 2020, has increased the threshold for initiating the insolvency resolution process from Rs 1,00,000/- to Rs 1,00,00,000/- under Section 4 of the IBC.