INNOVATING

INSOLVENCY
IBBI’s Progressive
Approach to Personal
Guarantor Cases
 Innovating Insolvency: IBBI’s Progressive Approach to Personal
Guarantor Cases 2

INTRODUCTION
The Insolvency and Bankruptcy Code (IBC) plays a pivotal role in
providing a structured framework for insolvency resolution processes,
ensuring fairness and transparency. The focus is on the rehabilitation
of the debtor as opposed to adjudging him as insolvent. The Code
establishes an objective trigger for initiating the insolvency resolution
process, rather than relying on the commission of an act of insolvency.

On September 27, 2023, the Insolvency and Bankruptcy Board of India

(IBBI) released a discussion paper on the appointment of the RP,
sharing of report prepared by the RP with the personal guarantor and
mandating the summoning of a meeting of the creditors.

The key highlights of the discussion paper are as follows:

 Innovating Insolvency: IBBI’s Progressive Approach to Personal
Guarantor Cases 3

1.
APPOINTMENT OF RP IN PERSONAL
GUARANTORS CASES TO STREAMLINE
INSOLVENCY PROCEEDINGS
As per Regulation 4(1)(a) of the IBBI (Insolvency Resolution Process for Personal
Guarantors (PG) to Corporate Debtors) Regulations, 2019, an insolvency
professional (IP) shall be eligible to be appointed as RP if he is independent of the
PG. Further, an explanation gives several instances where the RP is considered
independent of the PG. One of the clauses in the explanation specifies that
the IP shall be treated as independent of the PG if he has not acted or is not
acting as an interim resolution professional (IRP), RP or liquidator during the
corporate insolvency resolution process (CIRP) or liquidation process of the
CD, as the case may be.

1.1. Present issues:

The Board has noticed that, on numerous occasions, the appointed
RPs often face challenges when trying to submit reports as
required by section 99. This difficulty arises mainly due to the lack
of cooperation from the PGs. The RPs involved in PG cases have
limited access to the PGs’ financial records, making it complex for
them to perform their duties as outlined in the Code, Rules, and
Regulations.

Therefore, it is suggested that the IP handling the CD’s insolvency

process might be better suited to also act as the RP in PG matters.
This way, the insolvency proceedings can be conducted more
efficiently and professionally.

1.2. IBBI’s proposal:

Now, the IBBI has proposed to omit the restriction provided under
clause (i)(c) of the explanation to regulation 4(1). This clause provides
that an IP shall be considered independent of the guarantor if he
has not acted or is not acting as an interim resolution professional,
RP or liquidator in respect of the corporate debtor.

This change will enable the creditors of the CD to appoint the

IRP/ RP/ liquidator of the CD as RP in the PG matter, promoting
enhanced harmonization of both processes. Even in the case of
replacement of the IRP/ RP/ liquidator of the CD, the CoC in its
commercial wisdom may choose to appoint a common IP for both
processes.

Impact –

The proposed change to remove the restriction will enable greater flexibility in
appointing the same insolvency professional for both corporate debtor and personal
guarantor cases, streamlining the insolvency process and enhancing efficiency.
 Innovating Insolvency: IBBI’s Progressive Approach to Personal
Guarantor Cases 4

2.
SHARING A COPY OF REPORT OF RP WITH
THE DEBTOR AND THE CREDITOR FOR EN-
HANCED CLARITY
Section 99(10) of the IBC mandates the RP to share a copy of the report with the
debtor or the creditor, as the case may be. Therefore, this provision empowers
either the debtor or the creditor to receive a copy of the report prepared by the
RP. A strict interpretation of section 99(10) requires the RP to give a copy of the
report to either the debtor or the creditor, as the case may be.

In other words, the RP shall share a copy of the report with the debtor when
the application is filed by the debtor and the copy of the report will be shared
with the creditor when the application is filed by the creditor.

2.1. Present issues:

In certain instances, the IBBI observed that the Adjudicating
Authority requests notices to be issued to both parties while
deciding applications under Section 100. These notices are served
to the parties along with the reports submitted by the Resolution
Professional (RP).

To expedite the process, it is essential to clarify the provisions that

require these reports to be shared with both parties, either when
submitting them to the Adjudicating Authority or during the AA
proceedings.

2.2. IBBI’s proposal:

The IBBI has now proposed to clarify the requirement for the RP
to share the report of recommendations prepared under section
99(7) with both the debtor and the creditor in all cases. This will
ensure that both the debtor and the creditor are well-informed
about the evaluation and recommendations made by the RP,
thereby promoting transparency and informed decision-making

Impact –

IBBI’s proposed clarification of sharing the report of recommendations with

debtors and creditors enhances transparency, enabling informed decision-making
in insolvency proceedings, which can lead to fairer outcomes and more efficient
resolution processes.
 Innovating Insolvency: IBBI’s Progressive Approach to Personal
Guarantor Cases 5

3.
MANDATORY CREDITOR’S MEETING IN
ALL PERSONAL GUARANTOR INSOLVENCY
MATTERS
Under the extant provisions, a PG submits a repayment plan under section
105 to the RP. Subsequently, the RP assesses the viability of the repayment
plan and compiles a report on the payment proposal. Along with the report,
the RP recommends the calling of the meeting of the creditors, if necessary.
Where the RP recommends that a meeting of creditors is not required to be
summoned, the RP is required to state the reasons for the same.

3.1. Present issues:

While the provision was intended to provide speedy resolution of
matters in low-value cases, it is felt that the meeting of the creditors
should be necessary in the case of PGs as such cases are complex
in comparison to other cases of individual insolvencies.

The existing provisions, although well-intentioned, fall short in

acknowledging the intricacies surrounding PG cases. Unlike other
individual insolvency cases, PG matters often involve complex
financial interdependencies, multiple creditors, and a broader
impact on the overall insolvency resolution process.

3.2. IBBI’s proposal:

The IBBI has proposed to mandate the convening of a meeting of
creditors in all PG insolvency matters, irrespective of the amount
defaulted. This approach ensures that the collective voice of
creditors is incorporated into the resolution process, providing a
more comprehensive c perspective on the repayment plan.

By making the meeting of creditors mandatory, the proposed

amendment facilitates the active involvement of creditors in the
resolution process, fostering a sense of ownership and collaboration
among stakeholders.

Impact –

The proposal to mandate creditor meetings in all personal guarantor insolvency

matters, regardless of the default amount, is set to significantly enhance
transparency and creditor participation in the resolution process, fostering
greater collaboration and informed decision-making among stakeholders.
 Innovating Insolvency: IBBI’s Progressive Approach to Personal
Guarantor Cases 6

CONCLUSION:
In conclusion, the recent discussion paper released by the Insolvency
and Bankruptcy Board of India (IBBI) represents a significant step
towards enhancing the effectiveness and transparency of the insolvency
resolution process for Personal Guarantors to Corporate Debtors (PGs).
The proposed amendments address several key challenges faced by
Resolution Professionals (RPs) in PG cases, with the aim of streamlining
procedures and promoting fairness.

The IBBI’s proactive approach in addressing the intricacies of PG

insolvency matters sets a positive precedent for the ongoing evolution
of India’s insolvency framework. As these amendments take root, they
hold the promise of expediting case resolutions, instilling greater
confidence among stakeholders and contributing to the overall health
and stability of the financial ecosystem.
 Innovating Insolvency: IBBI’s Progressive Approach to Personal
Guarantor Cases 7

Our
Associations

Income-tax Department Indian Institute

of Banking & Finance

Income-tax National Institute

Appellate Tribunal of Securities Markets -
An Education Initiative of SEBI
 Innovating Insolvency: IBBI’s Progressive Approach to Personal
Guarantor Cases 8

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