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IBBI proposes 4 personal guarantor insolvency changes
The Indian Express··14 Sept
The Insolvency and Bankruptcy Board of India proposed four changes to personal guarantor resolutions after the Subhash Chandra case. Related-party creditors would lose voting rights on repayment plans. Professionals would check avoidance transactions before voting. Registered valuers would assess guarantor assets. Creditor minutes would record reasons when recoveries fall far below claims. Comments close on October 3.
Prism
What It Means For You
- Public comments on the discussion paper are open until October 3.
- Related-party creditors would lose voting rights, matching corporate insolvency practice more closely.
- Creditors would see valuation reports before deciding on repayment plans.
What's Happening
- On August 25, an NCLT bench approved a plan offering Rs 6.25 crore against Rs 22,006.57 crore in claims against Chandra.
- A special NCLT bench later stayed that single-bench order.
- Banks alleged non-bank creditors acted under Chandra's influence to push a deep haircut.
Why The Rules Are Changing
- Personal guarantor rules now bar a narrower associate from voting, not the wider related party test used in CIRP.
- Unlike CIRP, professionals need not examine avoidance transactions before a guarantor plan vote today.
- IBBI said recording creditor rationale would improve transparency when proposed payouts are far below claims.
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