Streamlining Personal Guarantor Cases: IBBI Lifts Restrictions on Dual Representation

The Insolvency and Bankruptcy Board of India (IBBI) has ushered in a significant change for personal guarantors of corporate debtors. Effective January 31, 2024, the IBBI has amended the “Bankruptcy Process for Personal Guarantors to Corporate Debtors, Regulations, 2019,” removing the restriction that prevented the same insolvency professional (IP) from handling both the company’s resolution process and the personal guarantor’s bankruptcy proceedings. This move aims to improve the efficiency and coordination of these interconnected cases.

Previously, separate IPs had to be appointed for the company and its guarantors, even when the cases were closely linked. This often led to delays, inconsistencies, and additional costs. By allowing a single IP to manage both processes, the IBBI expects to achieve several benefits:

• Enhanced Harmonization: The same IP can gain a deeper understanding of the overall financial situation, facilitating a more holistic approach to resolving both the company’s and guarantor’s liabilities.
• Improved Coordination: Streamlined communication and information sharing between the two processes can expedite decisions and reduce duplication of efforts.
• Increased Efficiency: Reduced procedural hurdles and faster resolution timelines can benefit all stakeholders involved.
• Cost Savings: Avoiding the need for two separate IPs can potentially lower the overall costs associated with the insolvency proceedings.

However, some concerns have been raised regarding potential conflicts of interest arising from dual representation. To address these concerns, the IBBI has emphasized the importance of due diligence and ethical conduct by IPs. Additionally, the amended regulations require mandatory meetings of the Committee of Creditors in personal guarantor cases, ensuring transparency and stakeholder involvement.

Overall, the IBBI’s decision to allow dual representation for personal guarantors marks a positive step towards streamlining insolvency proceedings. While careful monitoring and adherence to ethical guidelines are necessary, the potential benefits of improved efficiency, coordination, and cost savings hold significant promise for creditors, guarantors, and the overall insolvency ecosystem in India.