Insolvency regulator mulls tighter safeguards for personal guarantee insolvency

India’s insolvency regulator is considering stronger safeguards for insolvency proceedings involving personal guarantors of corporate debtors. Insolvency and Bankruptcy Board of India (IBBI) has sought comments on amendments to existing regulations covering related-party voting, questionable transactions, asset valuation, and creditors’ recorded deliberations.

“A related party of the guarantor…shall be assigned a ‘Nil’ voting share,” the IBBI discussion paper noted, adding that the list of creditors prepared by the resolution professional should separately indicate
whether a creditor is a related party of the guarantor.


The proposals seek to align safeguards for personal guarantors with corporate insolvency resolution processes. Currently, associates of personal guarantors cannot vote on repayment plans presented before creditors.

However, the regulator says the legal definition of an associate remains comparatively narrow. Consequently, certain connected creditors may vote despite having close relationships with the personal guarantor.

The second proposal concerns preferential, undervalued, fraudulent, and extortionate credit transactions by guarantors. Resolution professionals would examine such transactions and present detailed findings before the creditors’ meeting.

They would also initiate appropriate action using powers comparable to those available during bankruptcy. This scrutiny would help creditors determine whether assets were diverted, concealed, or improperly transferred.

The third proposal introduces independent valuation during the guarantor’s insolvency resolution process. A registered valuer would determine fair and realisable values of the guarantor’s assets. The valuation report would accompany the repayment plan placed before creditors for consideration.

This information would help creditors compare proposed payments with recoveries potentially available through bankruptcy.

A fourth proposal requires creditors to explain their commercial assessment of every repayment plan. Meeting minutes would record deliberations and reasons supporting approval, rejection, or other decisions. Creditors must consider admitted claims, proposed payments, timelines, assets, liabilities, and repayment capacity.

They must also examine transaction history, future income, feasibility, and payment certainty. Additional justification would be required when proposed recoveries remain significantly below admitted claims.

Creditors must then explain why the plan offers better commercial outcomes than bankruptcy. The regulator expects these changes to improve transparency, accountability, and informed creditor decision-making.