Introduction
The Insolvency and Bankruptcy Board of India (‘IBBI’) recently introduced a crucial amendment[i] to the insolvency resolution’s regulatory framework governing personal guarantors (‘PGs’). Effective from 31.01.2024, the IBBI (Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) (Amendment) Regulations, 2024, (‘the amendment’) signify crucial developments in enhancing the efficiency and effectiveness of insolvency proceedings involving PGs.
About the Amendment
The amendment has introduced a new provision in the existing principal regulations after reg. 17, designated as reg. 17A, which provides that now the Resolution Professional (‘RP’) is mandated to present the repayment plan, as outlined in s. 105 of the Insolvency and Bankruptcy Code, 2016 (‘IBC’) before creditor meeting (‘CM’) for their consideration. Additionally, in cases where no repayment plan is received within the specified period under s. 106 of the IBC, the RP is required to communicate this absence in a CM. This amendment underscores the importance of creditor involvement in the evaluation and decision-making processes related to repayment plans, ensuring transparency and adherence to statutory timelines.
The initial provision, designed for expeditious resolution in less complex cases, lacked a mandatory requirement for regular CMs. However, recognizing the intricate financial interdependencies and multiple creditors involved in PG cases, the amendment has made convening CMs mandatory. This adjustment reflects a more comprehensive approach tailored to the unique challenges posed by PG cases.
From an analytical standpoint, this amendment is poised to bring about positive implications within the framework of the IBC as the mandatory involvement of creditors in PG cases aligns with the broader principles of transparency, stakeholder engagement, and equitable resolution which is likely to strengthen the IBC’s effectiveness in addressing financial distress, promoting confidence in the insolvency framework and fostering a balanced and equitable resolution environment.
However, while the amendment aims to enhance transparency and collaboration, the concerns about potential delays in completing the insolvency process cannot be ignored. The amendment could have opted for a balanced approach rather than simply making it a mandatory provision. For instance, the amendment might have considered convening CMs only in cases where objections or crucial points necessitate discussion, preserving the expeditious resolution ethos of IBC. This would have ensured a pragmatic and targeted involvement of creditors without compromising the foundational principles of timely resolution embedded in the IBC.
The amendment has further modified reg. 4(1) of the principal regulations that deal with the eligibility of RPs whereby reg. 4(1)(c) has been omitted. This clause stated that the person must not have acted or be acting as interim RP, RP or liquidator in respect of the corporate debtor. This eligibility criteria has thus been done away with.
Conclusion
The overarching goal of the amendment is to foster a collaborative and comprehensive resolution process. By making creditor involvement mandatory, the amendment seeks to enhance the efficacy and fairness of the system, encouraging active participation and cooperation among all stakeholders. These changes reinforce a robust and equitable framework for addressing financial distress in PG cases. The amended regulations signify a forward-looking approach to insolvency proceedings, emphasizing coordination, fairness, and stakeholder engagement.
End Note:
[i] No. IBBI/2023-24/GN/REG107 dated 31.01.2024.
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Authored by Shivam Mishra, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.