IBBI’s discussion paper of 12 September proposes safeguards for insolvency proceedings involving individuals who have personally guaranteed a company’s debts. A personal guarantee makes the individual liable if the company defaults. When the guarantor also enters insolvency, creditors consider a repayment plan setting out what they would recover and over what period.
The paper proposes excluding creditors related to the guarantor from voting on that plan, widening the existing restriction on a narrower category of “associates”. It would also require the insolvency professional to examine transactions that may have depleted assets or unfairly favoured particular creditors, and appoint a registered valuer to assess the guarantor’s assets. The valuation and transaction findings would be available before creditors vote.
Creditors’ reasons for accepting or rejecting a plan would have to be recorded, including why a plan offering very low recovery is preferable to bankruptcy. These proposals matter to lender boards overseeing recovery from promoter and other personal guarantees: the assessment should explain both the assets available and the commercial basis for accepting a reduced repayment. Comments are invited by 3 October.
Sources: IBBI announcements | Discussion paper: reproduced text
