New insolvency guidelines will now net personal guarantors

The Insolvency & Bankruptcy Board of India (IBBI) is framing rules that will enable creditors to chase guarantors of defaulting companies to recover dues, sources told The Times of India.

This move is expected to help lenders tighten their grip around companies and promoters. These guidelines will be ready within a few weeks and will help banks recover their dues in cases where the entire claims were not settled during the resolution process, the report said.

IBBI Chairman MS Sahoo confirmed this development to the paper.

According to the report, the new guidelines suggest that the government is moving ahead with personal insolvency matters, including proprietorship and partnership firms.

A government official told the paper that companies will be more careful in dishing out guarantees if these rules come into place and will change the lending culture in the country.

The new rules will make promoters and their holding companies face direct action, the report said, adding that in the current system, personal assets of promoters, many of whom are habitual loan defaulters, have remained out of the case. “Now, it will be possible to go after their property. Your company can’t be losing money while you fly around in a jet or drive the latest luxury vehicle,” an official told the paper.

The government had amended the Insolvency & Bankruptcy Code (IBC) last year to prevent promoters whose companies have been a non-performing asset for over a year from participating in the corporate insolvency resolution process.