Personal guarantors of corporate debtors to be brought under IBC regime

The Centre has made a move in the insolvency reforms by bringing personal guarantors to corporate debtors within the fold of the Insolvency and Bankruptcy Code, 2016 (IBC) beginning December 1, 2019.

The Ministry of Corporate Affairs (MCA) has come up with a set of rules extending the scope of the IBC to personal guarantors of corporate debtors. Under the new framework, creditors will be allowed to continue the recovery process with personal guarantors after the completion of the corporate insolvency resolution process (CIRP).

According to experts these rules would likely bring about speedy resolution to insolvency cases of corporate debtors and also benefit both the banks and the personal guarantors in minimizing litigation. According to Insolvency and Bankruptcy Board of India (IBBI) Chairman MS Sahoo, resolution of personal guarantors under the IBC would complement the insolvency resolution of the corporate debtor and put personal guarantors and corporate guarantors on the same level playing field. He further said that the new regime will be prospective and invoked when there is a default. Further, the law of limitation shall apply.

The move is the first phase of operationalizing personal insolvency via IBC. In October, corporate affairs secretary Injeti Srinivas had said the government was planning to fully operationalize the personal insolvency regime under the IBC in one year.

A corporate debtor may have guarantors, who could be corporates (corporate guarantors) or individuals (personal guarantors). So far, the resolution of corporate guarantors was available under the IBC. Now, even resolution of personal guarantors will be available.

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