1. Insolvency and Bankruptcy Board of India (Insolvency Resolution Process For Personal Guarantors to Corporate Debtors) Regulations, 2019.
The Insolvency and Bankruptcy Board of India (IBBI) had vide gazette notification dated 20.11.2019 issued the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process For Personal Guarantors to Corporate Debtors) Regulations, 2019 (Resolution process of Personal Guarantors Regulations) which are the regulations which provide the mode and manner in which the Insolvency Resolution Process can be initiated against the Personal Guarantors to the Corporate Debtors. The Hon'ble Supreme Court had earlier clarified that moratorium provided under Section 14 of the Insolvency and Bankruptcy Code 2016 (I&B Code) do not apply to the Guarantors (both Personal as well as Corporate) of the Corporate Debtor and appropriate actions can be initiated against them. Moving a step ahead, the IBBI issued regulations w.r.t the mode and manner in which the Insolvency Proceedings can be initiated against the Personal Guarantors. Section 2(e) of the I&B Code 2016 provides that provisions of the Code will apply to personal guarantors of the Corporate Debtors. Section 94 to 120 of the I&B Code 2016 deals with the provisions of the Insolvency Resolution Process for Individuals and Partnership firms. The notified regulations w.r.t personal guarantors provides apart from other things the details w.r.t eligibility criteria for appointment of Resolution Professionals, preservation of the records w.r.t personal guarantor, registration of claims, mode and manner to convene the meeting of the creditors, contents of the notice to be served w.r.t meeting, quorum, voting, recording of the minutes.
Section 107 (3) (b) of the I&B Code, 2016 provides that the notice to be served w.r.t calling of a meeting of Creditors will include a statement of affairs of the Debtor (i.e., of personal guarantor in the present case). Regulation 10 of the Resolution Process of Personal Guarantor Regulations 2019 provides the contents of such Statement of Affairs to include the following:
- Assets and liabilities for the preceding three financial years and the current financial year;
- Details of the excluded assets and excluded debts;
- Income statement for the preceding three financial years and the current financial year;
- Income-tax returns filed by the guarantor, if any, for the preceding three financial years;
- Creditor wise amount due, broken up into secured and unsecured debt for the preceding three (3) financial years;
- Details of debt owed by the guarantor to his associates for the preceding three financial years;
- The guarantee is given in relation to any of his debts, and whether any of the guarantors is an associate of the guarantor; and
- Details of the financial statements for the business owned by the guarantor, or of the firm in which is a partner, as the case may be, for the preceding three financial years, if applicable.
Section 105 of the I&B Code 2016 discusses w.r.t Repayment Plan and provides that the debtor shall prepare, in consultation with the resolution professional, a repayment plan containing a proposal to the creditors for restructuring of his debts or affairs. Regulation 17 (1) of Resolution Process of Personal Guarantor Regulations, 2019 provides that content of such Repayment Plan shall include
- the term of the repayment plan and its implementation schedule, including the amounts to be repaid and dates of repayment to creditors;
- the source of funds that will be used to pay resolution process costs and that such payment shall be made in priority over any creditor;
- a minimum budget for the duration of the repayment plan, to cover the reasonable expenses of the guarantor and members of his immediate family to the extent they are dependent on him, provided that at least ten percent of the realizable income of the guarantor shall be utilized for repayment of debts;
- financing required for the implementation of the repayment plan;
- if the guarantor has any business, the manner in which it is proposed to be conducted during the course of the repayment plan, and the role of the resolution professional;
- the manner in which fund held for the purposes of the repayment plan, invested or otherwise dealt with, pending repayment to creditors;
- the functions which are to be undertaken by the resolution professional, including supervision and implementation of the repayment plan;
- variation of onerous terms of a contract or transaction involving the guarantor;
- the details of excluded assets and excluded debts of the guarantor; and
- terms and conditions for the discharge of the guarantor.
Further Regulation 17(2) of the Resolution Personal Guarantor Regulations 2019, provides that that repayment plan may also include the following:
- transfer or sale of all or part of the assets of the guarantor along with the mode and manner of such sale;
- administration or disposal of any funds of the guarantor;
- satisfaction or modification of any security interest;
- reduction in the amount payable to creditors;
- curing or waiving of any breach of a debt due from the guarantor;
- modification in terms of repayment of any debt due from the guarantor;
- part of the income of the guarantor to be used for the repayment of the debt, and the manner of calculating the income of the guarantor;
- the manner in which the funds held for the purpose of repayment of creditors, and not so repaid at the end of the repayment plan, is to be dealt with; and
- such other matters as may be required by the creditors.
Regulation 18 of the Personal Guarantors Regulations 2019 restricts certain kind of persons for purchasing or acquiring any interest in the property of guarantor, directly or indirectly without permission of the Adjudicating Authority:
- the resolution professional or any partner or director of the insolvency professional entity of which the resolution professional is a partner or director;
- any professional appointed by the resolution professional for the resolution process;
- any creditor;
- any company where the guarantor or a creditor is a promoter or director;
- any associate of the guarantor, creditor, or resolution professional.
2. Insolvency and Bankruptcy Board of India (Bankruptcy Process For Personal Guarantors to Corporate Debtors) Regulations, 2019.
The Insolvency and Bankruptcy Board of India (IBBI) had vide gazette notification dated 20.11.2019 issued the Insolvency and Bankruptcy Board of India (Bankruptcy Process For Personal Guarantors to Corporate Debtors) Regulations, 2019 (Bankruptcy process of Personal Guarantors Regulations) which are the regulations which provide the mode and manner in which the Bankruptcy Process can be initiated against the Personal Guarantors to the Corporate Debtors. Section 121 to 178 of the I&B Code 2016 deals with the provisions of Bankruptcy of an Individual. Section 121 of the I&B Code 2016 details the circumstances in which an application for bankruptcy of a debtor can be made by a creditor(s) or by a debtor to the Adjudicating Authority, and these are:
The term "Bankrupt" as per Section 79(3) of the I&B code 2016 in respect to a Personal Guarantor (individual) means a debtor who has been adjudged as bankrupt by a bankruptcy order under Section 126 of the I&B Code;
- Where an application filed for insolvency resolution of an individual is rejected by the Adjudicating authority (Section 100(4) of the I&B Code 2016);
- Where the repayment plan submitted under Section 112 of the I&B Code 2016 has been rejected by the Adjudicating Authority (Section 115(2) of the I&B Code 2016);
- Where a repayment plan due to reasons prescribed in Section 118 of the I&B Code 2016 has come to a premature end, then the debtor or creditor whose claims under the repayment plan have not been fully satisfied, shall be entitled to apply for a bankruptcy order. (Section 118(3) of the I&B Code 2016)
The term "Bankruptcy Debt" as per Section 79(5) of the I&B Code 2016 means any debt owed by bankrupt as on the bankruptcy commencement date or any debt for which bankrupt may become liable after bankruptcy commencement date but before his discharge by reason of any transaction entered into before the bankruptcy commencement date or any interest which is a part of the debt under Section 171 of the I&B Code.
The "Bankruptcy Commencement date" means an order passed by an Adjudicating authority under Section 126 of the I&B Code 2016.
The present regulations notified by IBBI on 20.11.2019 provides for the mode and manner in which the Bankruptcy Process is to be carried out and have come into effect from 1st December 2019. It includes apart from other procedural aspect, the eligibility criteria to be fulfilled by the Bankruptcy Trustee, fees of bankruptcy trustee, contents and timeliness of the reports which the bankruptcy trustee needs to submit with the Adjudicating Authority, claims to be verified by the Bankruptcy Trustee, mode and manner of convening of the meeting of the Committee of the Creditors, their voting rights, content of the notice, conduct of the meetings, etc., Mode of selling of the assets of the Bankrupt through auction or by private sale, valuation of the assets, manner of distribution of the proceeds of Bankruptcy Process.
Regulation 36 of the Bankruptcy Process of Personal Guarantor Regulations 2019 provides the mode and manner in which the unclaimed proceeds of the Bankrupt are to be taken care of. Regulation 36(1) provides that by order of Adjudicating Authority, any unclaimed process or undistributed asset or any other balance amount payable to the creditors which have been left with Bankruptcy Trustee will be credited to Insolvency and Bankruptcy Fund formed under the I&B Code 2016.
Regulation 36(2) further provides that without prejudice to any penalty that may be imposed by the Board, the Bankruptcy Trustee shall be liable to pay interest at the rate of twelve percent per annum on the amount retained by him, if he fails to (a) apply to the Adjudicating Authority within three (3) days from the date of filing; (b) credit to the fund within three days from the date of order of the Adjudicating Authority.
Regulation 36(3) provides that the Bankruptcy Trustee shall, when crediting the amount referred to in sub-regulation (1), furnish to the Board, a statement setting forth the following:
- The names and last known address of the creditors entitled to the unclaimed dividend or undistributed asset or any other balance;
- The amount of the unclaimed dividend or any other balance of each creditor;
- The value of the undistributed assets.
Regulation 36(5) allows the person claiming to be entitled to any amount paid into the Insolvency and Bankruptcy Fund to apply to the Board for an order for payment of the amount claimed and the Board may if satisfied that the person is so entitled to the whole or any part of the amount so claimed, may make an order for the payment to that person (Regulation 36(6)).
Any amount paid into the Insolvency and Bankruptcy Fund under sub-regulation (1), which remains unclaimed for a period of fifteen (15) years, shall be liable to be utilized for the purposes of the Insolvency and Bankruptcy Fund. (Regulation 36(7)).
3. Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019.
The Insolvency and Bankruptcy Board of India (IBBI) had vide gazette notification dated 15.11.2019 issued the rules providing the mode and manner of filing the Application before the Adjudicating Authority (National Company Law Tribunal) w.r.t initiation of Insolvency Resolution Process against the Personal Guarantors to Corporate Debtors under Section 94 or 95 of the I&B code 2016. These rules came into effect from 1st December 2019. The important rules of the Adjudicating Authority rules 2019 are as follows:
- Rule 6: Application by Guarantor (Debtor) under Section 94 of the I&B Code 2016 is to be made in Form A, along with an application fee of two thousand rupees (INR 2000/-) only.
- Rule 7 (1): Demand Notice by a Creditor as per Section 95(4) (b) shall be served on the guarantor in Form B.
- Rule 7(2): In case after serving of the Demand Notice as per the provisions of Section 95(4)(b) read with Rule 7(1) of the Adjudicating Authority rules 2019, there is a failure on the part of the debtor to pay the debt within a period of fourteen days of the service of the notice of demand, then an application can be made in Form C, along with a fee of two thousand rupees (INR 2000/-) only.
- Rule 11: Withdrawal of Application: The Adjudicating Authority may permit withdrawal of the application as filed w.r.t personal guarantor under Section 94 (corresponding rule 6) or Section 95 (corresponding rule 7(2)) either before its admission, on a request by the applicant or after its admission, on the request by the applicant, if ninety percent of the creditors agree to such withdrawal. The withdrawal application needs to be as per the format provided in Form D.
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