Personal guarantors now liable under IBC: Here’s what changes from 1 December

Personal guarantors will themselves also be able to approach the National Company Law Tribunal to claim their own insolvency.

So far, Debt Recovery Tribunals were the forum to approach against personal guarantors, be it a corporate insolvency or that of an individual or a partnership firm.

“As per the latest rules, proceedings against the corporate debtor as well as personal guarantors may be initiated simultaneously. The Code now provides easier and faster recourse for creditors against personal guarantor vis-à-vis the earlier regime which required the creditors to initiate recovery proceedings under the guarantee agreement and therefore, engage in prolonged litigation. Since the Code provides for a time bound process, the same will considerably reduce delays in recovery of dues of creditors from personal guarantors," said Padmaja Kaul, Partner, IndusLaw.

While the latest amendment extends the scope of IBC, it may need a subsequent amendment, feel experts.

Since the proceedings against the individual corporate debtor as well as personal guarantors can be initiated simultaneously, the manner in which the proceedings against a corporate debtor and personal guarantor will proceed is still not clear.

“Whether such proceedings will be conducted in parallel with each other or will they be unrelated, and in such a situation will the NCLT appoint a common resolution professional. It still remains to be seen as to what extent can the creditors recover from the personal guarantors after they have taken a haircut in the resolution plan of the corporate debtor and have discharged the borrower in its insolvency against the entire debt, after taking the haircut amount," Kaul said.