The Insolvency regulator Insolvency and Bankruptcy Board of India (IBBI) aims to enhance the efficiency of the personal guarantors’ insolvency process with three significant measures. 

These proposed measures, currently open for public comments until October 19, include mandatory creditors’ meetings for all personal guarantor insolvency cases, allowing a single resolution professional to handle both personal guarantor and corporate debtor insolvency, and mandating the RP to share recommendations with debtors and creditors. 

Current status

As of June 2023, 2,039 applications for personal guarantor insolvency had been filed, involving ₹1,59,425 crore in debt. Only 890 cases had RPs appointed, and 253 were admitted.

In 2019, personal guarantors came under the Insolvency and Bankruptcy Code. The push for insolvency proceedings began in July 2020 after the Supreme Court questioned why banks weren’t using this legal remedy, potentially affecting ₹1.8 lakh crore worth of guarantees.

Benefits of mandatory creditors’ meetings

The mandatory creditors’ meeting aims to involve creditors actively in the resolution process, promoting collaboration and ownership. It ensures creditors’ collective voice shapes the repayment plan. This proposed change recognizes the complexity of personal guarantor cases compared to other individual insolvencies.

Experts’ take

Hari Hara Mishra, CEO of the Association of ARCs in India, said the creditors’ involvement will add value as they understand the complexities better than resolution professionals (RPs).

“The focus on personal insolvency as key to value maximization arises, as  we have cases of having poor companies but rich promoters”, he said.

Mishra also said that the proposed amendment permitting the RP/Liquidator of the Corporate Debtor to take up insolvency of Personal Guarantors will ensure continuity and efficiency. 

Mukesh Chand, Senior Counsel, Economic Laws Practice, said that the proposed changes are cosmetic and may not make much of a difference as, as of now, Personal insolvency of guarantors matters are not moving in NCLTs because of pending writs in the Supreme Court. 

“Efforts should be on fast tracking judicial process so the fate of pending petition for admission could be decided”, Chand said.

Piyush Mishra, Partner, Luthra and Luthra Law Offices, said mandatory creditors’ meeting will bring more transparency and accountability and introduce a layer of checks and balances.

Allowing the same Resolution Professional to handle the insolvency processes of both the personal guarantors and the corporate debtor might bring about more synergies in guarantor insolvency, Mishra added.