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Personal guarantors too may now face insolvency heat - Report

Steel News - Published on Mon, 04 Dec 2017

Image Source: Compliance Calendar
Economic Times reported that the Insolvency and Bankruptcy Board of India is expected to step up its drive against defaulters by allowing lenders to act against high-profile individuals, including promoters of many companies, who have given personal guarantees to corporate loan defaulters. The eight-member body will meet to discuss changes in regulations that will allow assets of personal guarantors to be encashed and used for repayment of debt via separate proceedings at the National Company Law Tribunal.

Personal guarantors who may have escaped action in the NCLT process will no longer be immune to action by creditors. A working committee of insolvency professionals had submitted recommendations on such changes to IBBI a month ago.

The committee felt that such action will enable quicker aggregation of assets of defaulters and guarantors. The IBBI governing board will discuss the recommendations and is likely to approve them.

Once the regulations are finalised by IBBI and the government notifies them, lenders will be able to directly move against personal guarantors of companies facing insolvency proceedings. The lenders can start attaching financial assets and seize properties, and make these a part of the final settlement.

Current rules don’t permit such action. Mr Manoj Kumar, partner at Corporate Professionals said that “In most of the large default cases filed with NCLT, the promoters are the guarantors. Individual insolvency would be another blow to truant promoters seeking the escape route.”

To illustrate this, let’s assume a company is facing NCLT proceedings. With the expected change in regulations on individual insolvency, the company’s corporate guarantor (mostly promoters) can be dragged to separate NCLT proceedings. His assets could be encashed to repay the debt while leaving some funds aside for daily needs.

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Posted By : Sanju Moirangthem on Mon, 04 Dec 2017
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