Personal Guarantors: IBBI Addresses Gaps in Insolvency Process

Recent amendments notified by the Insolvency and Bankruptcy Board of India (IBBI) require resolution professionals, with creditors’ approval, to intimate the Adjudicating Authority of the non-submission of the repayment plan by personal guarantors.

Accordingly, Regulation 17B has been introduced in the IBBI (Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Regulations, 2019.

The provisions governing insolvency resolution and bankruptcy relating to personal guarantors to corporate debtors came into force on December 1, 2019. Over the past few months, the Board has observed an ambiguity in the provisions where an application by a creditor or personal guarantor to initiate the insolvency resolution process of the personal guarantor is admitted by the Adjudicating Authority, but no repayment plan is prepared. Out of 664 cases admitted for initiating the insolvency resolution process of personal guarantors, 143 have been closed on non-submission or rejection of the repayment plan.

It was acknowledged that such instances could create a procedural vacuum, potentially impacting the efficiency and effectiveness of the bankruptcy resolution process.

In its February 2025 discussion paper, the Board proposed making it mandatory for the resolution professional to file an application before the Adjudicating Authority, notifying it of the non-submission of the repayment plan. Based on this, the Authority may terminate the insolvency resolution process for the personal guarantor, thereby enabling the filing of an application for bankruptcy.

Additionally, amendments have been made to the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, substituting Regulation 40B and introducing a simplified and streamlined forms framework for monitoring the Corporate Insolvency Resolution Process (CIRP).