The Insolvency and Bankruptcy Board of India (IBBI) has taken a significant step towards enhancing transparency in the insolvency resolution process for personal guarantors. It now mandates Resolution Professionals (RPs) to provide a copy of their report to both the creditor and debtor in all cases. This measure aims to ensure that both parties are fully informed about the assessment and recommendations made by the RP, thereby fostering transparency and informed decision-making, as stated in a circular released by the IBBI on Monday.
Previously, RPs were only required to report to the Applicant who initiated the insolvency proceedings. Either the debtor under section 94 or the creditor under section 95 would receive the report from the RP, while the other party would be deprived of the advance recommendations of the report. Experts highlight that this new requirement aligns with the objective of the Insolvency and Bankruptcy Code (IBC) to ensure the effective balancing of the interests of all stakeholders.
This move emphasizes the importance of providing both parties with a copy of the report as per the principles of natural justice, especially when the process is first adjudicated judicially by the National Company Law Tribunal (NCLT). This allows the debtor/guarantor to better understand the debt and default evaluation presented by the RP and enables them to present their case before the NCLT more effectively.
Furthermore, this development allows the RP to commence negotiations or establish conditions of the repayment plan even before the application is filed before the NCLT, potentially leading to a more time-bound closure of the process. Experts anticipate that more resolutions will occur in a streamlined manner with increased fairness.
This circular holds particular significance in cases initiated under section 95 by the creditor against the personal guarantor/debtor, as the report is not typically shared with the debtor/guarantor by the Resolution Professional. However, experts highlight that the report is prudently prepared based on an in-depth assessment of facts from the debtor/guarantor.