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Insolvency Resolution of Personal Guarantor Key Features
Who can file and where Application for the insolvency resolution of a personal guarantor can be filed by (i) the guarantor, either personally or through a Resolution Professional (“RP”), in Form A; or (ii) by a creditor of such a personal guarantor, either personally or through a RP in Form C. The Adjudicating Authority for insolvency of a personal guarantor is the Debt Recovery Tribunal (“DRT”). However, if the CIRP of a CD is already pending with the National Company Law Tribunal (“NCLT”), then the insolvency petition for the personal guarantor ought to be filed before the same NCLT. If the petition of insolvency resolution of the personal guarantor predates the CIRP of the CD, then such an application will be transferred to the NCLT.
Demand Notice Creditor to send a demand notice to the personal guarantor in Form B, demanding payment in 14 days of service of notice.
Withdrawal of Application The DRT may permit withdrawal of the application either (i) before its admission, on a request made by the applicant or (ii) after its admission, on the request made by the applicant, if 90% of the creditors agree to such withdrawal.
Interim Moratorium Upon filing of the application, a moratorium commences i.e., during such time any action or proceeding pending in respect of the debt is stayed and no proceedings can be initiated by a creditor against the personal guarantor, for any debt. Interim moratorium ceases upon admission / rejection of the application.
Admission or Rejection The appointed RP reviews the application and sends his comments to DRT within 10 days of his appointment recommending rejection or admission of the application. Based on the RP’s report, DRT can either admit or reject the application within 14 days of the RP’s report. If the application is admitted, the DRT can instruct negotiation between the guarantor and the creditor for arriving at the repayment plan. If the application is rejected due to the RP’s recommendation or that the application is to defraud the creditors, DRT would record that the creditor is entitled to file for a bankruptcy of the guarantor.
Moratorium Once the application is admitted, a moratorium is applicable for 180 days. During this period, all pending legal proceedings for any debt of the personal guarantor are stayed, creditors cannot initiate legal proceedings for any debt and the guarantor cannot transfer, alienate, encumber or dispose of any of the assets or his legal right or beneficial interest.
Repayment The guarantor along with the RP will prepare a repayment plan with a proposal for restructuring of debts. The proposal should contain a justification and reason why creditors would agree to the proposed plan and also provide for payment of fee to the RP. While Insolvency Rules require the RP to submit the plan and his report within 21 days from the last submitted claim, the Insolvency Regulations require this to be done before completion of 120 days from the resolution process commencement date.
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