Insolvency and Bankruptcy Code Amendment Bill 2020: First & Second Amendment

The Insolvency and Bankruptcy Code (IBC) is a law in India, introduced in 2016, that helps resolve financial troubles for businesses and individuals in a structured and timely way. It aims to save struggling businesses by maximizing the value of their assets, encourage entrepreneurship by providing a clear process for handling financial failure, make sure banks and other lenders can recover their money efficiently and balance the needs of everyone involved, like creditors, business owners, and employees.

In 2020, India faced major economic challenges due to the COVID-19 pandemic. In order to address these challenges and improve the IBC, the government introduced two important updates: the First Amendment Act, 2020 (effective from December 28, 2019, but passed in March 2020) and the Second Amendment Act, 2020 (passed in September 2020). These changes were designed to make the insolvency process clearer, protect businesses affected by the pandemic, and ensure the system worked smoothly for all stakeholders. This article will talk about Insolvency and Bankruptcy Code Amendment Bill 2020, their key features, why they were needed, and how they impact businesses and creditors.

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Why Were the 2020 Amendments Needed?

The IBC was already a strong framework, but the COVID-19 pandemic created unique problems. The World Bank pointed out two major challenges for insolvency systems during the crisis:

1. Preventing viable businesses from failing too soon: Many businesses were struggling due to lockdowns and economic slowdowns, but they could recover with time and support.

2. Handling a wave of failing businesses: Some companies were unlikely to survive, and the system needed to manage these cases efficiently.

Before the 2020 amendments, India had already taken steps to ease the pressure on businesses, such as:

• Increasing the minimum default amount needed to start insolvency proceedings from ₹1 lakh to ₹1 crore (to avoid small claims clogging the system).

• Excluding lockdown periods from certain deadlines to give businesses more time.

The 2020 amendments built on these efforts. The First Amendment focused on improving the insolvency process itself, making it clearer and more efficient. The Second Amendment was specifically designed to help businesses survive the economic impact of COVID-19.

The First Amendment Act, 2020 (Effective from December 28, 2019)

The First Amendment Act, 2020, passed on March 13, 2020, made several changes to improve how the IBC works. These changes aimed to make the insolvency process more transparent, protect businesses during tough times, and ensure smoother operations. Here’s what it did:

1. Clarified When Insolvency Begins: The amendment made it clear that the insolvency process officially starts on the date when the application for the Corporate Insolvency Resolution Process (CIRP) is accepted by the authorities. This removed confusion about the starting point of the process.

2. Set Minimum Thresholds for Financial Creditors: For certain types of financial creditors (like banks or lenders), the amendment introduced minimum requirements to start the CIRP. This was to prevent small or insignificant claims from triggering insolvency proceedings, saving time and resources for bigger cases.

3. Allowed Corporate Debtors to File CIRP: The amendment clarified that a company facing financial trouble (a corporate debtor) can file insolvency proceedings against another company. This added flexibility and also allowed businesses to take action when others owe them money.

4. Protected Licenses and Permits During Moratorium: During the insolvency process, a “moratorium” period prevents creditors from taking certain actions against the company (like seizing assets). The amendment ensured that licenses, permits, registrations, or other government-issued rights (like business permits or quotas) cannot be canceled or suspended during this period, as long as the company pays its current dues. This helps businesses keep operating while resolving their financial issues.

5. Defined When the Resolution Professional is Appointed: The amendment specified that the Insolvency Resolution Professional (IRP), who manages the insolvency process, is appointed on the same day the CIRP application is accepted. This streamlined the process and avoided unnecessary delays.

6. Enabled Management During Transition Periods: Sometimes, there’s a gap between the end of the CIRP and the start of liquidation (if the company can’t be saved). The amendment allowed the resolution professional to manage the company during this interim period, ensuring smooth operations.

7. Ended Liability for Past Offenses: A new rule (Section 32A) was added to protect new owners of a company after the insolvency process. If a company is successfully resolved (e.g., taken over by a new owner), it is no longer held responsible for certain offenses committed before the insolvency process started. This encourages new investors to take over struggling companies without fear of legal consequences from the past.

8. Special Rules for Financial Service Providers: Financial service providers (like banks or insurance companies) have unique regulations. The amendment allowed their insolvency and liquidation processes to be handled with specific modifications to suit their needs.

These changes made the IBC clearer, protected businesses during the insolvency process and encouraged participation by new investors. They were designed to strengthen the system for the long term.

The Second Amendment Act, 2020 (Passed in September 2020)

The Second Amendment Act, 2020, passed on September 23, 2020, was a direct response to the economic challenges caused by COVID-19. It aimed to give temporary relief to businesses struggling due to the pandemic. Here’s what it did:

1. Temporary Suspension of CIRP for Defaults

The amendment stopped the initiation of CIRP for defaults that happened between March 25, 2020, and September 25, 2020 (a six-month period). The government could extend this suspension up to one year if needed. This was to protect businesses that defaulted on payments due to the pandemic, giving them time to recover.

However, insolvency proceedings could still be started for defaults that happened before March 25, 2020, ensuring that older cases weren’t ignored.

2. Removed Liability for Wrongful Trading

Normally, if a company’s directors or partners don’t take steps to minimize losses to creditors, they can be held personally responsible. The amendment removed this liability for defaults during the suspension period (March to September 2020), which protected business leaders from being unfairly blamed for financial troubles caused by the pandemic.

The goal of this amendment was to prevent businesses that were otherwise healthy from being pushed into insolvency due to temporary disruptions caused by COVID-19. It also aimed to reduce stress on the insolvency system, which was expected to face a surge in cases due to the economic crisis.

Also read about Section 12A of IBC, 2016.

Key Differences Between the First and Second Amendments

To make it easier to understand, here’s a comparison of the two amendments. The First Amendment focused on making the IBC stronger and clearer for all cases, while the Second Amendment was a temporary measure to help businesses survive the pandemic:

Summary

both the First and Second Amendments) had two main goals: strengthening the IBC and supporting businesses during COVID-19. The First Amendment made the insolvency process clearer, more efficient, and fairer for businesses, creditors and new investors. The Second Amendment gave temporary relief to companies struggling due to the pandemic, preventing unnecessary insolvencies. Together, these amendments helped maintain a balance between protecting businesses, supporting economic recovery and ensuring creditors could recover their money. As of 2025, these changes continue to shape how insolvency is handled in India, especially as the economy recovers from the pandemic.

Related Posts:

• Section 43 of IBC

• Section 60 of IBC

• Section 29A of IBC

• Section 33 of IBC

• Section 53 of IBC

Insolvency and Bankruptcy Code Amendment Bill 2020: FAQs

Q1. What are the Insolvency and Bankruptcy Code Amendments of 2020?

The 2020 amendments updated the IBC to improve how insolvency is handled and to help businesses during COVID-19. The First Amendment (passed March 2020) clarified rules and protected businesses during insolvency. The Second Amendment (passed September 2020) paused insolvency proceedings for defaults caused by the pandemic.

Q2. What are the latest amendments to the IBC in 2020?

The latest 2020 amendments include the First Amendment (effective December 2019, passed March 2020), which improved the insolvency process, and the Second Amendment (passed September 2020), which suspended insolvency proceedings for pandemic-related defaults.

Q3. What is the Insolvency and Bankruptcy Code Bill?

The IBC Bill, passed in 2016, is India’s law for handling insolvency and bankruptcy efficiently. The 2020 amendments updated this law to improve processes and provide relief during COVID-19.

Q4. What is the Insolvency and Bankruptcy Code, 2016, as amended?

The IBC, 2016, is India’s framework for resolving financial troubles of companies and individuals. The 2020 amendments made it clearer and paused insolvency for COVID-19-related defaults.

Q5. What is the time limit for completing the Insolvency and Bankruptcy Code process?

The IBC requires the Corporate Insolvency Resolution Process (CIRP) to be completed within 330 days, including any extensions and legal proceedings, as stated in Section 12 of the law.