{"id":108514,"date":"2021-05-25T10:17:49","date_gmt":"2021-05-25T04:47:49","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=108514"},"modified":"2021-05-27T12:50:07","modified_gmt":"2021-05-27T07:20:07","slug":"significance-of-sc-ruling-on-personal-guarantors-for-corporate-loans","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/significance-of-sc-ruling-on-personal-guarantors-for-corporate-loans\/","title":{"rendered":"Significance of SC Ruling on Personal Guarantors for Corporate Loans"},"content":{"rendered":"\n<p><strong>Synopsis &#8211; <\/strong>The Apex Court has dismissed all challenges to the l<a href=\"https:\/\/forumias.com\/blog\/sc-ruling-on-personal-guarantors-liability-for-corporate-debt\/\">iability of personal guarantors<\/a> for corporate loans under the insolvency code.<\/p>\n<h5><strong>Introduction<\/strong><\/h5>\n<p><span style=\"font-family: var(--list--font-family); background-color: var(--global--color-background); color: var(--global--color-primary); font-size: var(--global--font-size-base);\">The Supreme Court upheld a government notification of 2019 issued under the Indian Insolvency and Bankruptcy Code (IBC).<\/span><\/p>\n<ul>\n<li>This allows banks to initiate insolvency proceedings against personal guarantors who are usually promoters and top officials of debt-laden companies.<\/li>\n<li>Also, approval of a resolution plan for the corporate debtor does not end the personal guarantor\u2019s liability.<\/li>\n<\/ul>\n<p><strong>Central Government\u2019s 2019 notification \u2013 <\/strong>It made personal guarantors a separate category of individuals. They can be approached for recovery for defaults. They can do it under the IBC as part of the insolvency proceedings against defaulting corporate entities.<\/p>\n<p>This gives additional powers to lenders [financial institutions or banks] under IBC, to recover their money.<\/p>\n<ul>\n<li><strong>In response to the 2019 notification<\/strong>&#8211; There were more than 40 petitions filled, where petitioners had challenged the validity and operationalization of the central notification.<\/li>\n<li>However, the SC dismissed all the petitions stating that the government right.<\/li>\n<\/ul>\n<h5><strong>Significance of Ruling<\/strong><\/h5>\n<ul>\n<li>Firstly, the SC judgment will boost recovery efforts of banks involving piles of bad loans.\n<ul>\n<li>This will enable banks to take simultaneous action against corporate debtors and personal guarantors.<\/li>\n<li>As a result, the promoters [as the provider of personal guarantees] have to deal with their own insolvencies and not become an impediment\/roadblock to the insolvency proceedings of the corporate debtor.<\/li>\n<\/ul>\n<\/li>\n<li>Secondly, by roping in guarantors, there is a greater chance that they would \u201carrange\u201d for the payment of the debt to the creditor bank to save themselves.<\/li>\n<li>Thirdly, as guarantors can be approached even if an insolvency proceeding is ongoing, Banks can enhance recovery. Because most banks agree to \u2018haircuts\u2019 when negotiating a resolution plan with a new promoter for the defaulting company.<\/li>\n<\/ul>\n<h5><strong>Way forward-<\/strong><\/h5>\n<p>The judgment provided the much-needed teeth to banks and financial institution far as recovery action with respect to personal guarantees was concerned.<\/p>\n<p><strong>Source-<a href=\"https:\/\/epaper.thehindu.com\/Home\/ShareArticle?OrgId=G2K8JSALI.1&amp;imageview=0\">The Hindu<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Synopsis &#8211; The Apex Court has dismissed all challenges to the liability of personal guarantors for corporate loans under the insolvency code. Introduction The Supreme Court upheld a government notification of 2019 issued under the Indian Insolvency and Bankruptcy Code (IBC). This allows banks to initiate insolvency proceedings against personal guarantors who are usually promoters&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/significance-of-sc-ruling-on-personal-guarantors-for-corporate-loans\/\">Continue reading <span class=\"screen-reader-text\">Significance of SC Ruling on Personal Guarantors for Corporate Loans<\/span><\/a><\/p>\n","protected":false},"author":61,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[1230,1351,1310,9],"tags":[1278],"class_list":["post-108514","post","type-post","status-publish","format-standard","hentry","category-9-pm-daily-articles","category-daily-news","category-daily-news-updates","category-public","tag-eco_4","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1704887015},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/108514","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/61"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=108514"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/108514\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=108514"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=108514"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=108514"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}