Personal guarantors to corporate debtors to come under IBC regime from December 1

On Friday (15th November 2019), the Ministry of Corporate affairs notified “Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019”. [TO BE PUBLISHED IN THE GAZETTE OF INDIA, PART II, SECTION 3, SUBSECTION (i)]. The new rule called in short as “Insolvency and Bankruptcy rule 2019” shall come into force from the 1st day of December 2019.

The new rule shall apply to the insolvency resolution process for personal guarantors to corporate debtors. A corporate debtor (CD) may have guarantors, who could be corporate guarantors to Corporate Debtors or individuals/ personal guarantors to Corporate Debtors. Hitherto the resolution of corporate guarantors was available under IBC not to personal guarantors. Now even resolution of personal guarantors will be available under the system. The rule will be prospective and will be invoked when there is a default. Further, law of limitation also applies for invoking guarantee. The new law which shall come into force from the 1st day of December 2019 would benefit banks as it will be a time bound process and can take all promoters (who have given guarantees) into consideration. The new law also expected to help personal guarantors as the resolution put personal guarantors and corporate guarantors on the same level playing field and which minimizes litigation.