The Insolvency and Bankruptcy Board of India (IBBI) has recently introduced a significant measure aimed at enhancing transparency in the insolvency resolution process concerning personal guarantors.
Mandate for Resolution Professionals
The IBBI now mandates that Resolution Professionals (RPs) must provide a copy of their report to both the creditor and the debtor in all cases.
Objective
This requirement aims to ensure that both parties involved in the insolvency resolution process are well-informed about the evaluation and recommendations made by the RP. This, in turn, promotes transparency and informed decision-making.
Previous Practice
Before this mandate, RPs were only required to report to the Applicant who initiated the insolvency proceedings. The report was shared with either the debtor under section 94 or the creditor under section 95. The other party was not provided with the advance recommendations of the report.
Expert Opinion
Anjali Jain, Partner – Insolvency & Restructuring Practice at Areness, lauds this move by IBBI, stating that it aligns with the objective of the Insolvency and Bankruptcy Code (IBC) to ensure a balance of interests among stakeholders. She emphasizes the importance of furnishing the report to both parties, in accordance with the principles of natural justice.
Implications
With both the debtor and creditor having access to the RP’s report, the debtor/guarantor gains a better understanding of the debt and default assessment. This allows them to present their case more effectively before the National Company Law Tribunal (NCLT).
Potential Benefits
This new requirement enables RPs to initiate negotiations or develop repayment plans before the application is filed with the NCLT. Consequently, it is expected to lead to a time-bound closure of the insolvency process and streamline resolutions with greater fairness.
Specific Advantages
Anjali Jain highlights the specific advantage of this circular in cases where proceedings are initiated under section 95 by the creditor against the personal guarantor/debtor. Previously, the debtor/guarantor was not provided with the RP’s report, despite its preparation involving an in-depth examination of facts from their perspective.
Multiple-Choice Questions (MCQs):
- What is the recent mandate introduced by the IBBI regarding personal guarantors’ insolvency resolution?
- A) Providing a copy of the RP’s report to the creditor only.
- B) Providing a copy of the RP’s report to both the creditor and debtor.
- C) Providing a copy of the RP’s report to the debtor only.
- D) Providing a copy of the RP’s report to neither party.
- Before the recent mandate, who was the RP mandated to report to?
- A) The debtor only.
- B) The creditor only.
- C) Both the creditor and debtor.
- D) The Applicant who initiated the insolvency proceedings.
- What is Anjali Jain’s opinion on the IBBI’s circular?
- A) She criticizes it for being biased towards creditors.
- B) She believes it aligns with the IBC’s objective of balancing stakeholder interests.
- C) She suggests it undermines the principles of natural justice.
- D) She recommends excluding debtors from the insolvency resolution process.