Resolution professional of corporate debtor can also get appointed as RP in case of personal guarantors

The insolvency regulator has proposed that Interim Resolution professional (IRP), resolution professional (RP) or liquidator of a corporate debtor (CD) can also be eligible to get appointed as RP in insolvency case involving personal guarantors of the CD.

The proposal has been made in a consultation paper floated by the Insolvency and Bankruptcy Board of India.

Regulation 4 (1)(a) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for personal guarantors to Corporate Debtors) Regulations, 2019 (PGCD Regulations) specifies that an insolvency professional (IP) shall be eligible to be appointed as RP if he is independent of the PG.

The rule further says that an IP will be treated as independent of the PG if he has not acted or is not acting as interim resolution professional (IRP), RP or liquidator during the corporate insolvency resolution process (CIRP) or liquidation process of the CD.

However, the regulator now feels that the aforesaid clause becomes a hurdle in effective discharge of duties by an RP in case of Personal Guarantors.

As the RPs appointed in the PG matters have limited access to the financial records of the PGs, it becomes exceedingly complex to perform their duties diligently as provided under the Code, the Rules and the Regulations made there under, feels the regulator.

Also, the regulator thinks the interrelatedness and close proximity of PGs and CDs would justify that the same IP may be appointed to run both the processes.

“As the IP in the CIRP or liquidation process would be better placed with respect to the information of the CD as well as the PG, his appointment in the PG matter may expedite, restructure and maximise the assets of CD and to discharge the PG of his liability. In fact, section 60(2) of the Code provides for the same NCLT bench to deal with the case of CD and its PG. So, the aspect of increased efficiency due to better coordination has been given due weightage wherein the same bench hearing the matters of the CD and its PG is envisaged,” says the consultation paper.

It further says that the same IP appointed as RP in the Personal Guarantor cases and CIRP of the concerned corporate debtor will harmonize the claims and realisation in both the processes. The aspect of increased efficiency due to better coordination will require that cases of CD and PG may be handled by the same IP if so desired by the CoC members in their commercial wisdom.

Therefore, the regulator proposes deletion of clause (i)(c) of Explanation to sub-regulation (1) of regulation 4 of the PGCD Regulations

Also Read: IBBI simplifies enrolment, registration process of insolvency professionals