The insolvency regulator is readying rules that will enable creditors to go after guarantors of ailing companies to recover dues, a move that will tighten the grip around companies as well as their promoters who had given personal covers.
The Insolvency & Bankruptcy Board of India (IBBI) is working on guidelines that are expected to be ready in the next few weeks, sources said, adding that the idea is to help banks and individuals recover dues from guarantors where they have failed to have the entire claims settled during the resolution process, sources told TOI. When contacted, IBBI chairman M S Sahoo confirmed the development. “We are working on rules and regulations to operationalise insolvency of personal guarantors in companies,” Sahoo said.
The regulations will also signal the government and the IBBI’s intent to move ahead with personal insolvency matters, including on proprietorship & partnership firms and individuals.
“The move will make companies and their promoters more careful in dishing out guarantees and will further change the lending culture in the country,” said a government official. Besides, the new rules will, for the first time, make promoters and their holding companies face direct action. Under the current system, despite the Insolvency and Bankruptcy Code (IBC), personal assets of the promoters, many of whom are seen to be habitual loan defaulters, have not been touched. “Now it will be possible to go after their property. Your company can’t be losing money while you fly around in a jet or drive the latest luxury vehicle,” said an official.
Last year, the government had amended the IBC to bar promoters whose companies have been an NPA for over a year from participating in a corporate insolvency resolution process, which has seen a long court battle involving the Essar Group and ArcelorMittal vying for Essar Steel. While the SC recently provided clarity on the issue of personal guarantees under the insolvency law, amendments to IBC paved the way for the regulations.