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Creditors have recovered 2.16 per cent, or Rs 102.78 crore, of their admitted claims from personal guarantors under the Insolvency and Bankruptcy Code (IBC), the latest data from the Insolvency and Bankruptcy Board of India (IBBI) shows.
Personal guarantors’ insolvency resolution, experts said, is an opportunity to balance debtor relief with creditor recovery, but its trajectory leans on debtor leniency.
The IBBI data shows of the 383 admitted personal guarantors’ insolvency processes, 124 have been closed. Of these 12 have been withdrawn, 86 have been closed because repayment plans were not submitted or rejected, and for 26 the repayment plan has got approval.
The provision for insolvency resolution of personal guarantors was enabled in November 2019 by the IBBI. The rules in this regard were brought in as part of a phased introduction of individual insolvency laws.
An initial challenge of the process was whether a banker’s agreement with the company and the personal guarantor was inter-linked or separate. In February this year, the IBBI allowed the same insolvency professional for the resolution process of a company as well as its personal guarantor for better harmonisation and effective coordination.
Experts say invoking personal guarantees under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act or the Indian Contract Act was time-consuming, allowing personal guarantors to divert, erode, or create encumbrances over their assets, thereby making the process ineffective.
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