The Insolvency and Bankruptcy Board of India (IBBI), as well as the Ministry of Corporate Affairs (MCA), is in favour of disallowing individuals who have been declared insolvent, from holding any public office or being the personal guarantor to any company, government sources close to the development said. “We have discussed that they (individuals declared insolvent) should not be allowed to hold or run for any public office. The repayment plan and schedules also have to be thought of. Because unlike corporate insolvency, here no one is taking over,” a top executive from the IBBI said. The Central government had on December 1 notified amendments to the Insolvency and Bankruptcy Code (IBC), 2016, in which it had brought a corporate debtor’s personal guarantor under the purview of the Code. Lenders to a company can now, thus, approach the National Company Law Tribunal seeking to initiate insolvency proceedings against the personal guarantor of a corporate debtor, apart from the company itself. Though IBC provides for the initiation of insolvency proceedings against individuals, it has until now been silent on the process for the same. It could take the government up to three years to come up with the final rules for personal insolvency, government sources indicated. “Unlike corporate insolvency, you cannot kill an individual if they fail to repay. That is a tricky part. And if individuals themselves approach the courts for initiation of insolvency against them, we will also have to ensure that there is no fraud there,” an MCA official said, adding that the learnings from the corporate insolvency resolution process (CIRP) would be relevant. Corporate Affairs Secretary Injeti Srinivas had in October said that the personal insolvency regime was a very large subject and once commenced, it would bring all types of borrowers under its ambit. He had then also indicated that the Centre could look at a “non-adjudicatory process” for small borrowers with small exposures to lenders. “It would be based on verification . whether it is about assets they (such borrowers) have or their monthly income. Accordingly, insolvency would be determined and relief would be extended,” Srinivas had said. For personal insolvency to be fully functional and operate smoothly, the government is also looking to augment its capacity for training of “evaluation professionals” who would be responsible to determine whether the small borrowers have genuine cases of not being able to repay, the sources said. “We want these evaluation professionals to come from the already existing framework of lawyers, insolvency professionals, and chartered accountants,” the officials said.
