Insolvency regulator mulls tighter safeguards for personal guarantee insolvency
The Insolvency and Bankruptcy Board of India (IBBI) issued a discussion paper proposing amendments to strengthen safeguards in the insolvency resolution process for personal guarantors to corporate debtors
Related parties of a personal guarantor would be assigned a "nil" voting share on the repayment plan, and the list of creditors would have to separately flag which creditors are related parties
Resolution professionals would be required to examine whether the guarantor was party to avoidance transactions (preferential, undervalued, fraudulent, or extortionate) and disclose this to creditors before the vote
Mandatory valuation of the personal guarantor's assets by a registered valuer is proposed, along with a requirement to record creditors' reasoning when approving a repayment plan, especially where recovery is significantly lower than the liquidation/bankruptcy alternative
Public comments on the proposed amendments to the IBBI (Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Regulations, 2019 have been invited till October 3, 2026
Personal Guarantor Insolvency under Part III of the IBC
The Insolvency and Bankruptcy Code, 2016 (IBC) deals with insolvency of corporate persons under Parts II, and separately provides for insolvency and bankruptcy of individuals — including personal guarantors to corporate debtors — under Part III. This framework was brought into force for personal guarantors through a November 2019 notification, extending IBC's insolvency architecture beyond companies to individuals who had guaranteed corporate loans.
Key Details
- Section 94 of the IBC allows a debtor (including a personal guarantor) to initiate their own insolvency resolution process; Section 95 allows a creditor to do so
- Filing an application triggers an interim moratorium, and the Adjudicating Authority (NCLT, for guarantors of corporate debtors) appoints a Resolution Professional to examine the application and prepare a repayment plan
- Section 111 of the IBC requires a repayment plan (or its modification) to be approved by more than three-fourths in value of creditors present and voting — a special threshold distinct from the CIRP approval threshold of 66% under Section 30(4) for corporate resolution plans
- The Supreme Court in Lalit Kumar Jain v. Union of India (2021) upheld the validity of the November 2019 notification bringing personal guarantors under IBC's insolvency framework, holding that a guarantor's liability is co-extensive with the principal debtor's and is not automatically discharged by the corporate debtor's resolution plan
The current discussion paper amends Chapter III of Part III's implementing regulations (the 2019 Personal Guarantor Regulations), aiming to close gaps between the safeguards available to creditors in personal guarantor cases and those already available in the more developed Corporate Insolvency Resolution Process (CIRP).
Related Party vs Associate — Voting Integrity Safeguard
IBC jurisprudence distinguishes "related party" from the narrower category of "associate" to prevent conflicted stakeholders from influencing an insolvency vote. A "related party" can include persons who habitually act on the debtor's advice or instructions even without a shareholding or board-control relationship — a broader net than "associate," which typically requires a defined ownership or control link.
Key Details
- In Corporate Insolvency Resolution Process (CIRP) under IBC Section 21(2) and Section 29A, related-party financial creditors are already excluded from the Committee of Creditors' voting share to prevent conflicts of interest — a safeguard the personal guarantor framework currently lacks
- The IBBI's proposed Regulations 10A and 10B (amendments to the 2019 Personal Guarantor Regulations) would assign related parties of the guarantor a "nil" voting share on the repayment plan, mirroring the CIRP-side protection
- Avoidance transactions (preferential, undervalued, fraudulent, and extortemate) are defined under Sections 43-51 of the IBC for corporate insolvency; the paper proposes an equivalent examination duty for resolution professionals handling personal guarantor cases, which does not presently exist
Excluding related-party creditors from voting closes a loophole where insiders connected to the guarantor could approve a lenient repayment plan that shortchanges arm's-length creditors — the central concern the IBBI's proposal addresses.
Valuation and Creditor Due Diligence in Insolvency
Independent, registered-valuer-based asset valuation is a cornerstone safeguard across IBC processes, ensuring creditors vote on a resolution or repayment plan with an objective, verifiable estimate of realisable value rather than the debtor's or resolution professional's unverified figures.
Key Details
- Under CIRP, Regulation 27 and 35 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 already mandate two registered valuers to determine fair value and liquidation value of the corporate debtor
- Registered valuers are regulated under Section 247 of the Companies Act, 2013 and the Companies (Registered Valuers and Valuation) Rules, 2017, with IBBI acting as the primary authority overseeing valuer registration for insolvency proceedings
- The discussion paper proposes extending a similar mandatory valuation requirement to personal guarantors' assets, and requiring documented creditor reasoning when a repayment plan offers a recovery meaningfully lower than what liquidation/bankruptcy would yield
Mandating asset valuation and reasoned creditor deliberation for personal guarantors imports a safeguard already standard in corporate insolvency, addressing information asymmetry that could otherwise let a personal guarantor's repayment plan be approved on the basis of unverified or self-reported asset values.
- IBC Part III (individual insolvency, including personal guarantors to corporate debtors) notified for personal guarantors: November 2019
- Repayment plan approval threshold under Section 111, IBC: more than three-fourths (75%) in value of creditors present and voting
- CIRP resolution plan approval threshold under Section 30(4), IBC: at least 66% voting share of the Committee of Creditors
- Governing regulations being amended: IBBI (Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Regulations, 2019 (new Regulations 10A, 10B; amendment to Regulation 15)
- Landmark case upholding personal guarantor insolvency framework: Lalit Kumar Jain v. Union of India (2021), Supreme Court of India
- Public comment deadline on the IBBI discussion paper: October 3, 2026