IBBI Proposes Stricter Rules for Personal Guarantor Insolvency to Curb Related-Party Voting and Safeguard Lender Recovery
The insolvency regulator is looking to tighten rules aimed at preventing related parties of personal guarantors from influencing loan repayment plans. In a discussion paper, the Insolvency and Bankruptcy Board of India (IBBI) suggested a more foolproof definition of related parties of personal guarantors and explicitly depriving them of any voting rights. It also proposed independent valuation of the guarantor’s assets and closer scrutiny of transactions that could undermine the funds available to lenders.
The move is expected to make it even more difficult for creditors to act in concert and influence how the guarantor’s debts are settled.
The IBBI move comes shortly after the controversy over Zee founder Subhash Chandra’s personal insolvency case. The National Company Law Tribunal (NCLT) on September 1 barred the Essel Group Chairman from alienating his assets and stayed an earlier order allowing him to settle claims arising from personal guarantees on group borrowings for about Rs 6.5 crore, against Rs 22,006 crore claims. Appeals against the plan are pending before the tribunal.
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According to the new proposals from IBBI, resolution professionals (RPs) would identify “related-party creditors” under Section 5(24A) of the Insolvency and Bankruptcy Code and flag them separately in the creditor list.
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At present, an “associate” of a personal guarantor cannot vote. However, the definition of an associate is narrower than that of a related party, allowing some connected creditors to retain voting rights. This gap will be addressed in the new rules.
IBBI also proposes independent valuation of the guarantor’s assets. A registered valuer would determine their fair and realisable value, with the report placed before creditors along with the repayment plan. This would help creditors compare the recovery offered under the plan with what they could recover through bankruptcy.
The board also proposes closer scrutiny of preferential, undervalued, fraudulent and extortionate (PUFE) transactions that may have reduced the money available to lenders. RPs would have to examine such transactions before creditors vote on a repayment plan. The board seeks to allow RPs to take action against them during the insolvency process, with lenders’ approval. Similar action is currently available only at the bankruptcy stage. The change would allow money or assets lost through PUFE transactions to be recovered before creditors vote on the plan.
Under a personal guarantee, the guarantor is liable for the borrower’s debt if the borrower defaults. The amount lenders can recover depends on the guarantor’s assets, income and ability to repay, making asset valuation crucial when choosing between a repayment plan and bankruptcy.
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Pranshu G, partner at Ashok Pranshu & Co, said the proposals address a genuine gap in the personal guarantor framework. “A repayment plan should not be voted upon without creditors knowing the realisable value of the guarantor’s assets, whether value has been diverted through antecedent transactions, and whether connected creditors are influencing the outcome.”
The choice between a repayment plan and bankruptcy can produce different outcomes. Under a repayment plan, creditors receive payments from the guarantor over a set period and may prefer it if future income offers a better recovery than selling assets through bankruptcy. If the plan is not viable, bankruptcy provides another route to recover money from the guarantor’s assets.
Rajeev Nair, partner at Rajani Associates, said the proposals seek to bring safeguards available in corporate insolvency into personal-guarantor cases. “The valuation requirement would allow creditors to compare the repayment plan with the actual value of the guarantor’s assets and identify possible leakages,” he said.
The IBBI has invited public comments on the proposals until October 3, 2026
This article was first uploaded on September thirteen, twenty twenty-six, at twenty-six minutes past eight in the night.
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