Meeting of creditors to be made mandatory in personal guarantors insolvency cases
The Insolvency and Bankruptcy Board of India (IBBI) is considering an amendment to the Insolvency and Bankruptcy Code, 2016 (IBC) to make the convening of a meeting of creditors mandatory in all personal guarantors (PG) insolvency matters, irrespective of the amount defaulted.
Currently, under Section 106 of the IBC, the resolution professional (RP) is required to recommend the convening of a meeting of creditors if necessary. However, the RP is not obligated to call a meeting of creditors in all cases. This has led to concerns that the interests of creditors may not be adequately protected in Personal Guarantors insolvency cases.
Currently, personal guarantors submit repayment plan under section 105 to the resolution professional (RP). Subsequently, the RP assesses the viability of the repayment plan and compiles a report on the payment proposal. Along with the report, the RP recommends the calling of the meeting of the creditors, if necessary. Where the RP recommends that meeting of creditors is not required to be summoned, the RP is required to state the reasons for the same. While the provision was intended to provide speedy resolution of matters in low-value cases, it is felt that the meeting of the creditors should be necessary in the case of personal guarantors as such cases are complex in comparison to other cases of individual insolvencies.
The insolvency regulator feels that the existing provisions, while well-intentioned, fall short in acknowledging the intricacies surrounding PG cases. Unlike other individual insolvency cases, PG matters often involve complex financial interdependencies, multiple creditors, and a broader impact on the overall insolvency resolution process. The interconnectedness of the PG’s obligations with those of the CD, coupled with the potential repercussions on the business’s financial health, underscores the need for a more rigorous approach.
The proposed amendment seeks to address this concern by mandating the convening of a meeting of creditors in all PG insolvency cases. This will ensure that creditors have a voice in the resolution process and can provide their input on the repayment plan.
