In an attempt to bring harmony and reduce delays, the Insolvency and Bankruptcy Board of India (IBBI) has now allowed the appointment of the same insolvency professional (IP) in the resolution or liquidation process of the corporate debtor (CD) and its personal guarantor (PG).
“Removal of this restriction will allow the appointment of the same IP in both the corporate process as well as the insolvency and bankruptcy proceeding of the PGs to the CDs for better harmonisation and effective coordination of both the processes,” the IBBI said on Saturday. The regulatory changes are effective from January 31.
In a discussion paper floated in October, the IBBI had proposed to remove the restriction as it had observed that on numerous occasions, the resolution professionals (RPs), who are IPs, encounter significant challenges in submitting their evaluation report of the bankrupt company to the creditors, primarily due to the lack of cooperation from the PGs.
The regulator had also said that the RPs appointed in the PG matters have limited access to the financial records, and thus, it becomes exceedingly complex for them to perform their duties “diligently”.
Further, IBBI has made the meetings of the Committee of Creditors (CoC) mandatory in the PG insolvency cases, which earlier was not the case.
Previously, the PG submitted a repayment plan to the RP, who then evaluated its viability and submitted a report to the Adjudicating Authority (AA). The RP used to decide whether a meeting of CoC is necessary or not. This provision existed for speedier resolution in less complex cases.
“However, the intricacies of PG cases, which often involve elaborate financial interdependencies and multiple creditors, necessitate a more thorough approach. To address complexities and unique challenges inherent in the PG cases, the amendment aims to make the convening of meeting of creditors mandatory,” the IBBI said.
This mandatory involvement of creditors brings a comprehensive and collaborative approach to the resolution process, enhancing the efficacy and fairness of the system, the regulator said.
Sudhir Chandi, Partner, Resurgent Resolution Professional said that both the amendments were very essential and were long awaited as they seek to remove hurdles and discrepancies in the operational aspects.
“This also underlines the need for coordination and constant feedback for all the stakeholders to bring in the much needed efficiency in the processes and the whole mechanism,” he said.