IBBI proposes tighter insolvency safeguards for personal guarantors

The Insolvency and Bankruptcy Board of India (IBBI) has proposed new regulations to strengthen safeguards during insolvency proceedings for personal guarantors. These proposals aim to increase transparency and accountability in the resolution process.

Key proposed changes include assigning a ‘nil’ voting share to related parties of a guarantor to prevent them from influencing repayment plans. The IBBI also suggests that resolution professionals must scrutinize transactions for potential fraud, undervaluation, or preferential treatment, presenting detailed findings to creditors. Additionally, the regulator proposes mandatory independent asset valuations by registered valuers to provide creditors with a fair basis for assessing repayment plans.

These regulatory moves follow high-profile cases, such as the insolvency proceedings of Essel Group chairman Subhash Chandra, where creditors faced a massive haircut. In that instance, a proposed settlement suggested a recovery of approximately Rs 6.5 crore against claims totaling roughly Rs 22,006 crore.

Separately, the National Company Law Tribunal (NCLT) Mumbai Bench-VI admitted an application by the Central Bank of India to initiate the Corporate Insolvency Resolution Process against Rama Agro Foods Private Limited. The company acted as a corporate guarantor for Shri Gajanan Maharaj Sugar Limited, which defaulted on a term loan totaling Rs 23.68 crore.