The removal of the restriction on such a dual role by the resolution professional (RP) is aimed at “better harmonization and effective coordination of both the processes”, according to a statement by the Insolvency and Bankruptcy Board of India (IBBI).
The regulator has also made regular meetings of the committee of creditors (CoC) mandatory in bankruptcy resolution involving personal guarantors to defaulting firms. Prior to this, the RP had the freedom to decide if such meetings were necessary.
Earlier, the personal guarantor used to submit a repayment plan to the RP, who would then evaluate its viability and submit a report to the National Company Law Tribunal with a recommendation on whether to call a meeting of the creditors. And if the RP deemed the meeting unnecessary, he would just provide the reason for it.
“As this provision was initially designed for speedier resolution in less complex cases, there was no mandatory requirement to regularly convene meetings of the creditors,” the IBBI said in the statement.
However, the intricacies of personal guarantor cases, which “often involve elaborate financial interdependencies and multiple creditors, necessitate a more thorough approach”, the regulator said, explaining the reason for the change in the regulations.The mandatory involvement of creditors would bring a comprehensive and collaborative approach to the resolution process, enhancing the efficacy and fairness of the system, it added.The Supreme Court had in November upheld the constitutional validity of key provisions of the Insolvency and Bankruptcy Code (IBC) relating to personal guarantors. It had allowed creditors to initiate insolvency proceedings against personal guarantors of loans taken by defaulting companies without giving them an opportunity to present their stand in what, experts had said, was a key ruling that could speed up the bankruptcy process.
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