ICAI Handbook on Personal Guarantors to Corporate Debtors under The Insolvency and Bankruptcy Code, 2016
The Insolvency and Bankruptcy Code, 2016 was implemented with the provisions relating to insolvency and liquidation of corporate persons coming into force in December 2016. Implementation of individual insolvency and bankruptcy was intended to be notified in a phased manner and accordingly, Part III of the Code (i.e., Insolvency Resolution and Bankruptcy for Individuals and Partnership Firms) for personal guarantors to corporate debtors have been notified by the Central Government and the provisions came into effect from 1st December 2019.
Given its intertwining nature, it becomes crucial that insolvency of the Corporate Debtor as well as its guarantors are studied together wherever required for fulfilment of insolvency resolution process and liquidation process since it is quite common of giving personal guarantees for loans taken by corporate debtor. Thereby, the insolvency proceedings of the corporate debtor and personal guarantors are interlinked.
Since the enactment of The Insolvency and Bankruptcy Code, 2016 over the last four years we all are aware how the Code is evolving continuously and developments are taking place regularly for effective implementation of the legislation.
As provided in Section 128 of Indian Contract Act, 1872, liability of a guarantor is co-extensive with that of the principal borrower. It implies that if the principal borrower defaults in repayment of debt to a creditor, the creditor may choose to go after the guarantor for payment of debt. It accordingly has been a natural corollary that the insolvency regime for personal guarantors to corporate debtors were made available from 1st December, 2019. After the commencement notification of provisions under Part III of the Code for Personal Guarantors to Corporate Debtors, the Rules pertaining to insolvency and Rules pertaining to bankruptcy for Personal Guarantors to Corporate Debtors have been notified by Ministry of Corporate Affairs and the Regulations for Personal Guarantors to Corporate Debtors have also been notified by Insolvency and Bankruptcy Board of India.
Looking at the significance of this subject, the Committee on Insolvency & Bankruptcy Code of ICAI as part of its initiative in bringing pertinent publications in the insolvency resolution area has brought out this publication – Handbook on Personal Guarantors to Corporate Debtors under the Insolvency and Bankruptcy Code, 2016, so as to enable understanding the application and intricacies of the provisions related to personal guarantors under the Code.