Insolvency Cases

Insolvency Cases

  • The Government has advised the state run to statdy the insolvency cases which aslso require proceedings to be initiated against personal guarantors of Cororate Debots in the National Company Law Tribunal.
  • The Government feels that this will ensure that banks are able to explore all possible avenues while realizing loans. Rules which empower creditors to file insolvency applications against personal guarantors came into effect in December last year.
  • This will put the banks to pave way for creating a mechanism for monitor to initiate individual insolvency process before NCLT against personal guarantors to Corporate debtors as per the Department of Financial Services. Also, the department has request the banks to consider setting up an IT system to collate data regarding personal guarantors to corporate debtors in all such cases for requisite follow-up and consequential action.

The Government suspended sections 7,9 and 10 of the Insolvency and Bankruptcy Code for six months wef 25 March in order to avoid the borrowers being pulled into the Insolvency on account of existing COVID `19 Pandemic. Further it may be recalled that

  • Section 7 permits a financial creditor to initiate a corporate insolvency resolution process against a Corporate Debtor
  • Sector 9 provides for the application of Insolvency by an operational Creditor and
  • Section 10 relates to the initiation of insolvency resolution proceedings by a Corporate applicant.

The Government is expected to take a call at September end as to whether the suspension needs to be extended.  It is learnt that the Government is trying to nudge lenders to invoke personal guarantees and thus initiate IBC proceedings against guarantors whenever possible.

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