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Centre notifies Regulations for Insolvency Resolution and Bankruptcy Proceedings of Personal Guarantors to Corporate Debtors - (20 Nov 2019)

Insolvency

The Insolvency and Bankruptcy Board of India (IBBI) notifies Regulations for Insolvency Resolution and Bankruptcy Proceedings of Personal Guarantors to Corporate Debtors which will come in force from 1st December, 2019. On 15th November, Central Government also notified new IBC Rules to cover financial service providers. The Insolvency and Bankruptcy Code, 2016 (Code) envisages reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner and to promote entrepreneurship, availability of credit and balance the interests of all stakeholders. The Code classifies individuals into three classes, namely, personal guarantors to CDs, partnership firms and proprietorship firms, and other individuals, to enable implementation of individual insolvency in a phased manner.

When a corporate debtor (CD) takes a loan guaranteed by another corporate person (corporate guarantor to the CD) or an individual (personal guarantor to the CD) and when there is a default in repayment of the loan, the lender may pursue a remedy against the guarantor or the CD, being principal borrower. The insolvency resolution of corporate guarantors to the CD and of personal guarantors to the CD complements insolvency resolution of the CD. Accordingly, the Code provides that where an application for insolvency resolution or liquidation proceeding of a CD is pending before a National Company Law Tribunal (NCLT), an application relating to insolvency resolution or liquidation or bankruptcy of a corporate guarantor or a personal guarantor shall be filed before the NCLT. Further, insolvency resolution, liquidation or bankruptcy proceeding of a corporate guarantor or a personal guarantor of the CD pending in any court or tribunal shall stand transferred to the NCLT.

Central Government also notified the Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019; and the Insolvency and Bankruptcy (Application to Adjudicating Authority for Bankruptcy Process for Personal Guarantors to Corporate Debtors) Rules, 2019 on same day. These Rules provide for the process and forms of making applications for initiating insolvency resolution and bankruptcy proceedings against personal guarantors to CDs, withdrawal of such applications, forms for public notice for inviting claims from the creditors, etc.

Tags : NEW RULES   INSOLVENCY RESOLUTION   CORPORATE DEBTORS  

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