Insolvency and Bankruptcy Board of India (IBBI) has taken another crucial step towards enhancing transparency in the insolvency resolution of personal guarantors.
It has now mandated that Resolution Professionals (RPs) provide a copy of its report to both creditor and debtor in all cases.
This will ensure that the debtor and creditor are well informed about the evaluation and recommendations made by the RP, thereby promoting transparency and informed decision-making, IBBI said in a circular on Monday.
Prior to the latest diktat, RPs had been mandated to report to the Applicant who originally invoked the insolvency proceedings. Only either of the two, i.e. debtor under section 94 and creditor under section 95 would be served with the report by RP, and the other party is deprived of the advance recommendations of the report.
Commenting on the latest IBBI Circular, Anjali Jain, Partner - Insolvency & Restructuring Practice at Areness, a law firm, said this circular now aligns with the objective of the IBC to ensure the effective balancing of the interest of all stakeholders.
“When process is first time adjudicated judicially by NCLT, it is imperative that the copy of the report must be furnished to both the parties as per the rules of principles of natural justice”, she added.
With this, the debtor/guarantor would now better understand the debt and default equation or the evaluation matrix followed by the RP in his report and would thus be able to present his case before NCLT in a more efficacious manner, she added.
Not only this, the RP would also be able to start working on the negotiations or conditions of the repayment plan even before the application before NCLT is filed, and thus time-bound closure of the process is expected with this new development.
More resolutions are expected to happen in a streamlined manner with more fairness, she added.
The circular is specifically advantageous in cases where the proceedings are initiated under section 95 by the creditor against the personal guarantor/debtor as the report is not shared with the debtor/ guarantor by the Resolution Professional, even though the report has been pragmatically prepared only making an in-depth ascertainment of facts from the debtor/guarantor, Jain added.