Amendments to the Insolvency and Bankruptcy Process Involving Personal Guarantors to Corporate Debtors

The Insolvency and Bankruptcy Board of India in exercise of its powers conferred by clause (t) of sub-Section (1) of Section 196, Section 240 read with clause (e) of Section 2 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) has issued:

1. The Insolvency and Bankruptcy Board of India (Insolvency Process for Personal Guarantors to Corporate Debtors) (Amendment) Regulations, 2024 (“Insolvency Amendment Regulation”) vide regulation No. IBBI/2023-24/GN/REG107 dated January 31, 2024ⁱ , amending the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Regulations, 2019ⁱⁱ (“Insolvency Regulation”); and

   
   
2. The Insolvency and Bankruptcy Board of India (Bankruptcy Process for Personal Guarantors to Corporate Debtors) (Amendment) Regulations, 2024 (“Bankruptcy Amendment Regulation”) vide regulation No. IBBI/2023-24/GN/REG108 dated January 31, 2024ⁱⁱⁱ , amending the Insolvency and Bankruptcy Board of India (Bankruptcy Process for Personal Guarantors to Corporate Debtors) Regulations, 2019^iv (“Bankruptcy Regulation”).



The following are the key highlights of the substitutions and insertions introduced through the Insolvency Amendment Regulation and Bankruptcy Amendment Regulation (collectively referred to as “Amendment Regulations”):

1. Persons to be considered independent of the guarantor for the purpose of appointment of a resolution professional and bankruptcy trustee

Existing Position under Insolvency Regulation and Bankruptcy Regulation:



Under the Insolvency Regulation, sub-clause (c) of clause (i) of the explanation to Regulation 4(1) and sub-clause (c) of the explanation to Regulation 3(1) of the Bankruptcy Regulation respectively specify that a person is considered independent of the guarantor if they meet certain criteria:

1. is not an associate of the guarantor;


2. is not a related party of the corporate debtor; and


3. has not acted or is not acting as interim resolution professional, resolution professional or liquidator in respect of the corporate debtor.

Change introduced through the Amendment Regulations:



Pursuant to the introduction of the Amendment Regulations, sub-clause (c) of clause (i) of the explanation to Regulation 4(1) and sub-clause (c) of the explanation to Regulation 3(1) of the Insolvency Regulation and Bankruptcy Regulation respectively has been removed. This change means that a person who has served or is serving as an interim resolution professional, resolution professional, or liquidator for the corporate debtor can now be considered independent of the guarantor for the purpose of appointment of a resolution professional and bankruptcy trustee.



2. Meeting of the creditors for considering the repayment plan



Pursuant to the introduction of the Insolvency Amendment Regulation, Regulation 17A has been inserted after Regulation 17 (Contents of repayment plan) of the Insolvency Regulation that provides for meeting of the creditors to decide upon the repayment plan placed before it by the resolution professional as per Section 105 of IBC. Provided that where no repayment plan has been received within such period as stipulated under Section 106 of IBC, the resolution professional shall notify the same in a meeting of creditors.



3. Persons not to be appointed as professionals by a bankruptcy trustee

Existing Position:



As per Regulation 5(1) of the Bankruptcy Regulation, a bankruptcy trustee may appoint accountants, registered valuers, advocates or other professionals to assist him in the discharge of his duties, obligations and functions for a reasonable remuneration. However, the bankruptcy trustee cannot appoint the following persons:



1. a relative of the bankruptcy trustee;


2. a partner or director of the insolvency professional entity of which the bankruptcy trustee is a partner or director;


3. an insolvency professional who has acted or is acting as an interim resolution professional, a resolution professional or a liquidator in respect of the corporate debtor;


4. an associate of the bankrupt; and


5. a related party of the corporate debtor

Change introduced through the Bankruptcy Amendment Regulation:



Pursuant to the introduction of the Bankruptcy Amendment Regulation, clause (c) of the Regulation 5(1) is omitted, allowing the bankruptcy trustee to now appoint an insolvency professional who has acted or is acting as an interim resolution professional, a resolution professional or a liquidator in respect of the corporate debtor for his assistance.