Lenders can invoke personal guarantees at NCLT to recover debt

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Mumbai | Published: April 24, 2018 4:13:08 AM

The National Company Law Appellate Tribunal (NCLAT), in a recent order, has allowed bankers to invoke personal guarantees of companies admitted by the National Company Law Tribunal (NCLT) for resolution at the NCLT, making it easier for lenders to recover their dues.

NCLT, IBC,  Debt Recovery Tribunal, INDIALAW LLPThe non-notification of bankruptcy law provisions related to individuals, partnerships and guarantors of corporate debtors was a major deterrent for banks looking to invoke personal guarantees of promoters.

The National Company Law Appellate Tribunal (NCLAT), in a recent order, has allowed bankers to invoke personal guarantees of companies admitted by the National Company Law Tribunal (NCLT) for resolution at the NCLT, making it easier for lenders to recover their dues. The non-notification of bankruptcy law provisions related to individuals, partnerships and guarantors of corporate debtors was a major deterrent for banks looking to invoke personal guarantees of promoters. Since this particular section of the Insolvency and Bankruptcy Code, 2016 (IBC) was not notified, banks had to approach the Debt Recovery Tribunal (DRT) if they wanted to invoke the personal guarantees of defaulting companies. At the DRT, the process would take anywhere between three-five years, compared with the 270-day deadline under the IBC.

“If corporate insolvency resolution process has been initiated against the ‘corporate debtor’, the insolvency and bankruptcy resolution process against the ‘personal guarantor’ can be filed under section 60(2) before the same adjudicating authority (National Company Law Tribunal) and not before the Debt Recovery Tribunal (DRT),” the NCLAT said in an order on April 18.

“This removes a serious hindrance to the effective implementation of the IBC. It will help bankers to invoke the personal guarantees of corporate debtors against which insolvency and bankruptcy resolution process has already been initiated and recover their money,” said K P Sreejith managing partner, INDIALAW LLP. Bankers welcomed the move and said conducting insolvency resolution process against a corporate debtor before the NCLT and against the guarantors under the old recovery law was a big challenge.

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