IBBI allows same RP for company and personal guarantor insolvency

The Insolvency and Bankruptcy Board of India (IBBI) has lifted the restriction to allow the same insolvency professional for the resolution process of a company as well as its personal guarantor for a better harmonisation and effective coordination of both processes.

The changes made to IBBI - Bankruptcy Process for Personal Guarantors to Corporate Debtors, Regulations, 2019 -- came into effect on January 31.

IBBI has also amended the provision regarding the meetings of the Committee of Creditors to make them mandatory in insolvency matters about personal guarantors.

Earlier, after the repayment plan was submitted by the personal guarantor, the resolution professional would evaluate its viability and submit a report to the Adjudicating Authority with a recommendation on whether to call a meeting of the creditors.

If the professional deems such a meeting unnecessary, he provides reasons for the same.

A resolution professional looks after the operations of the sick company after the insolvency process starts and coordinates the resolution process among the committee of creditors, adjudicating authorities, and prospective bidders.

This provision was initially designed for speedier resolution in less complex cases where there was no mandatory requirement to regularly convene meetings of the creditors.

The IBBI has amended this provision keeping in mind the intricacies of personal guarantor cases, which often involve elaborate financial interdependencies and multiple creditors, that would require a more thorough approach.

“This mandatory involvement of creditors brings a comprehensive and collaborative approach to the resolution process, enhancing the efficacy and fairness of the system,” the IBBI said.

The regulator added that the amendment intends to foster active participation and cooperation among all stakeholders, thereby reinforcing a robust and equitable framework for addressing financial distress in personal guarantor cases.

In November last year, the Supreme Court upheld the constitutionality of the key provisions of the Insolvency and Bankruptcy Code (IBC), including the validity of initiation of insolvency against personal guarantors.

Anil Ambani, chairman of the Reliance group, who was among the petitioners who challenged the IBC provisions, had said in his appeal that the IBC law left personal guarantors at the mercy of resolution professionals.