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Personal guarantor insolvency under IBC from December 1

According to the Supreme Court’s recent ruling in the Essar Steel case, overturning an order of the National Company Law Appellate Tribunal, claims against a personal guarantor would not extinguish once a resolution plan for the corporate debtor was approved.

ET Bureau|
Last Updated: Nov 20, 2019, 07.07 AM IST|Original: Nov 20, 2019, 07.07 AM IST
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The new framework will allow creditors to continue the recovery process with personal guarantors after the completion of the corporate insolvency resolution process.
NEW DELHI: The government on Tuesday notified rules for the initiation of insolvency proceedings against personal guarantors to corporate debtors, to be applicable from December 1. Under these rules, if insolvency proceedings against a corporate debtor under the Insolvency and Bankruptcy Code are already in process, the same bench of the bankruptcy court would also deal with the proceedings against the personal guarantor.

Experts said the introduction of these rules would likely bring about a faster resolution to insolvency cases of corporate debtors as well. “The insolvency of personal guarantor to a corporate debtor being dealt with at the same bench which is hearing the insolvency of the corporate debtor will improve potential recovery for lenders and make the recovery process more holistic and easier procedurally,” said Manoj Kumar, a partner at law firm Corporate Professionals.

According to the Supreme Court’s recent ruling in the Essar Steel case, overturning an order of the National Company Law Appellate Tribunal, claims against a personal guarantor would not extinguish once a resolution plan for the corporate debtor was approved.

The new framework will allow creditors to continue the recovery process with personal guarantors after the completion of the corporate insolvency resolution process. The move is the first phase of operationalising personal insolvency via IBC. In October, corporate affairs secretary Injeti Srinivas had said the government was planning to fully operationalise the personal insolvency regime under the IBC in one year.

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