Personal Guarantors to Corporate Debtor

Abstract

Given the interrelated nature of the insolvency process involving personal guarantors of the corporate debtor due to shared debts, the Central Government, in November of 2019, introduced the provisions related to “Insolvency Resolution and the Bankruptcy Process of Personal Guarantors to the Corporate Debtors”. This legislative action provided creditors with the flexibility to commence proceedings against both personal guarantors of corporate debtors and corporate debtor (CIRP) simultaneously and thereby it improves the chances of recovery to the stakeholders of the corporate debtor and encouragement of cohesive approach in resolving insolvency issues. A notable ruling by the Appellate Authority in the case of SBI vs. Athena Energy Ventures (P) Ltd further confirmed that the IBC, 2016 permits the simultaneous initiation of the Corporate Insolvency Resolution Process (CIRP) against the primary borrower and its guarantors of the principal borrower, when guaranteed by the individuals.