India’s insolvency regulator plans to tighten regulations on personal guarantor cases, introducing measures to improve asset evaluation, prevent creditor influence, and ensure transparent resolution processes amidst ongoing reforms.
India’s insolvency regulator is moving to tighten the rules around personal guarantor cases, in a sign that it wants lenders to have a clearer view of assets, related-party links and potentially recoverable transactions before backing a repayment plan. The Insolvency and Bankruptcy Board of India said in a discussion paper issued on 12 September that it is seeking comments on proposed changes to the framework that governs insolvency resolution for personal guarantors to corporate debtors.
One of the central proposals would strip related-party creditors of any voting power in repayment-plan discussions. At present, an associate of a personal guarantor cannot vote, but the board wants resolution professionals to go further by identifying related-party creditors under the insolvency code and marking them separately in the creditors’ list. The regulator said the change is intended to close gaps created by a narrower definition of associate and to prevent connected creditors from swaying the outcome.
The board also wants a mandatory valuation of a guarantor’s assets, with a registered valuer required to assess both fair value and likely realisable value. According to the discussion paper, creditors would receive that valuation alongside the repayment plan so they can compare the offer with what might be recovered through bankruptcy. Business Standard reported earlier this year that the regulator has also been examining tighter valuation norms more broadly, including greater control over how valuers are appointed and when their reports are shared.
IBBI further wants creditors’ meetings to record not just the decision on a repayment plan but the reasoning behind it, particularly where the proposed recovery is far below the admitted claim or the estimated value of the guarantor’s assets. The board has also proposed closer scrutiny of preferential, undervalued, fraudulent and extortionate credit transactions, known collectively as PUFE transactions. Resolution professionals would be expected to examine whether a guarantor was involved in such dealings and provide that information before a vote, while action to recover diverted assets could begin during the resolution process rather than waiting for bankruptcy.
The latest proposals come against a wider push by the regulator to refine the personal guarantor regime after a series of rule changes this year. In June, IBBI amended bankruptcy regulations to standardise valuation formats and documentation, while separate changes in May introduced mandatory pre-filing mediation and a more localised appointment process for resolution professionals. Taken together, the measures suggest the board is trying to make personal guarantor cases faster, better documented and less vulnerable to disputes over influence or missing assets.
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