Proposed Amendments by the Insolvency and Bankruptcy Board of India (IBBI)

The IBBI has suggested four significant amendments to the insolvency resolution process for personal guarantors to corporate debtors to align protections for banks or creditors with those available under the Corporate Insolvency Resolution Process (CIRP).

Voting Rights for Related Parties

• No Voting for Related Parties: Creditors who are 'related parties' of the guarantor will not have voting rights in the resolution plan approval.
• Current Limitations: Under CIRP, related parties of a debtor company cannot vote. In contrast, only 'associates' are barred from voting in personal guarantor resolutions, but this definition is narrower.
• Example: A company acting habitually on a guarantor's advice without shareholding might be a 'related party' but not an 'associate'.

Examination of Avoidance Transactions

• Mandated Investigation: Resolution professionals must investigate whether the guarantor was involved in avoidance transactions like undervalued, preference, or extortionate credit transactions during the resolution stage.
• Procedure: Findings should be presented to creditors before voting, and legal proceedings can be initiated with creditor approval.

Asset Valuation in Resolution Process

• Valuation Requirement: Resolution professionals need to appoint a registered valuer to assess the guarantor's assets' fair and realisable value.
• Purpose: The valuation report will help creditors assess the repayment plan's adequacy, security, viability, and potential recovery.

Recording Creditors' Deliberations

• Detailed Records: Resolution professionals must document creditors' objections, assessments, and commercial reasoning in the meeting minutes.
• Objective Assessment: Creditors should record the rationale when the proposed payment is significantly lower than admitted claims or asset value.
• Outcome: This aims to enhance transparency, accountability, and informed decision-making in repayment plan approvals.

These proposals come in response to the National Company Law Tribunal (NCLT) case involving Subhash Chandra and Essel Group, highlighting issues with the current Insolvency and Bankruptcy Code (IBC) process.