The Digitorney Crisis Navigator
Covid-19 in India:
Legal Framework for Companies
The Corona Crisis leads worldwide to critical situations for companies. In light of this, Digitorney has asked lawyers from various countries specialized in restructuring law for recommendations on what needs to be done and which solutions are at hand to weather the Corona Crisis. This part of our series focuses on India.
Kunaal Shah, lawyer and partner at Trilegal based in Mumbai gives more colour on this topic for our “Digitorney Crisis Navigator”.
When does a company need to file for insolvency in India?
Under the Indian insolvency regime, a company is subject to insolvency proceedings when: (i) it fails to meet its payment obligations and its creditors initiate insolvency proceedings against such company; or (ii) the shareholders of the company voluntarily decide to liquidate the company. Generally, most insolvency proceedings (or related actions in India) are driven by creditors (financial or operational)
who initiate insolvency proceedings against defaulting companies. Currently, there are no COVID 19 exceptions prescribed under the insolvency regime. In other words, a defaulting company cannot take shelter because of the impact the COVID 19 outbreak has had on business operations and will be subject to insolvency proceedings if the creditors opts for such a route. >> READ MORE
What liability risks exist in India in a corporate crisis?
If an Indian company gets distressed, the liability of the management is two-fold: An employer-employee risk – the management is responsible for ensuring that a safe working environment is maintained, and the company adheres to regular directions and guidelines issued by government agencies while tackling this pandemic
situation. The management has to ensure that all reasonable steps / actions (such as sanitization, work from home directives, spreading awareness, precautionary measures etc.) should be taken to tackle the COVID-19 outbreak; and … >> READ MORE
Is there any public support for distressed companies in India?
At present no state aids or support measures have been announced or are being offered by the governmental authorities. However, there have been press reports that government agencies have been speaking with various industry stakeholders to understand their concerns. A task force has also been established by the government (led by the Indian Finance Minister) to consider what relief measure/concessions can be granted to affected
industries. As mentioned above, the steps being taken by the Indian government are at a nascent stage (when compared to other countries in Europe). However, the situation is changing, and it is likely that the next few weeks will involve further Government action to tackle the progressing situation.
Ad hoc solutions
What should an Indian company do in light of the Corona crisis?
To a certain extent, the immediate measures a mangement may take or implement is industry specific (as some industries will be affected more than others). Some immediate measures the management may undertake are as follows: Create additional liquidity: India is a capital starved nation.
The current Covid 19 issue has only exacerbated the need for additional capital and in a crisis/stressed environment, liquidity is paramount. Hence, approproate steps should be taken to ensure liquidity. This would help the businesses to conitnue as a going concern…. >> READ MORE