Business & Finance
IBBI Proposes Four Amendments to Personal Guarantor Resolution Process
The Insolvency and Bankruptcy Board of India (IBBI) has announced four amendments aimed at tightening safeguards in the insolvency resolution of personal guarantors to corporate debtors, mirroring protections already in place under the Corporate Insolvency Resolution Process (CIRP). The changes include: 1) Excluding any creditor who is a ‘related party’ of the guarantor from voting on the resolution plan. Under CIRP, a related party of a debtor company has no voting right in the committee of creditors; in personal guarantor cases, only ‘associates’ are currently barred, but the definition of associate is narrower than that of related party. 2) Requiring resolution professionals to investigate whether the guarantor was involved in avoidance transactions—such as undervalued, preference, or extortionate credit transactions—during the resolution stage, present findings to creditors before voting, and, if necessary, initiate legal action with creditor approval. 3) Mandating that a registered valuer determine the fair and realizable value of the guarantor’s assets and submit a valuation report to creditors alongside the repayment plan. 4) Compelling resolution professionals to record creditors’ objections, assessments, and the commercial reasoning behind their decisions in the meeting minutes. Currently, only raw voting tallies are recorded in personal guarantor cases.
The proposals were released in a discussion paper seeking public comments until October 3, following a special National Company Law Tribunal (NCLT) bench’s stay on a single bench order in the Subhash Chandra case. On August 25, the NCLT single bench approved a repayment plan involving personal guarantor and Essel Group founder Subhash Chandra, offering creditors just Rs 6.25 crore against admitted claims of Rs 22,006.57 crore. The case has drawn scrutiny of the Insolvency and Bankruptcy Code (IBC) introduced in 2016, with banks alleging that non‑bank entities acting as associates or related parties of the guarantor pushed the plan with a large haircut.
IBBI said the amendments would promote transparency, accountability, and informed decision‑making, ensuring that approval of a repayment plan is based on an objective assessment of recovery prospects.