IBC crackdown gets more teeth; insolvent people may be locked out of these key positions

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Updated: Dec 24, 2019 12:15 PM

Lenders can now approach NCLT to seek insolvency proceedings against the personal guarantor of a corporate debtor, apart from the company itself.

ibc, insolvency and bankruptcy code, insolvency, IBC Code 2016, diwaliya kaanoonEarlier this month, the centre had brought a corporate debtor’s personal guarantor under the purview of the code.

Undergoing insolvency procedure may soon restrict the individuals from holding any public office or being the personal guarantor to any company. The Insolvency and Bankruptcy Board of India, along with the Ministry of Corporate Affairs, is in favour of barring individuals who have been declared insolvent, from holding such positions, government sources told The Indian Express. Earlier this month, the centre had brought a corporate debtor’s personal guarantor under the purview of the code. Though IBC has not used this option in the past, it may use it in the future.

According to the rule, the lenders can now approach the National Company Law Tribunal to seek insolvency proceedings against the personal guarantor of a corporate debtor, apart from the company itself. The sources also said that the government may take up to another three years to establish rules for personal insolvency. They also referred to a fundamental roadblock against personal insolvency that when the company cannot repay, the company can be shut down but if a person cannot pay, he cannot be killed. 

Also Read: Insolvency Code progress report: Nearly 4 times as many cases in liquidation as in resolution

After three years of operation of IBC Code 2016, the personal insolvency is likely to generate new turbulence but the possibility of committing fraud on a personal level cannot be overseen. To cut down the rush, the centre may also look at a “non-adjudicatory process” for small borrowers with small exposures to lenders.

To make the personal insolvency run smoothly, the government is likely to pick evaluation professionals from the already existing framework of lawyers, insolvency professionals, and chartered accountants, who would be responsible to determine whether the small borrowers have genuine cases of not being able to repay.

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