Insolvency Regulator Backs Creditors' Right To Pursue Guarantors Even After Resolution

The insolvency regulator proposed on Wednesday that creditors should be able to chase loan guarantors even after investor resolution plans. This aims to clear up conflicting judicial orders on guaranteed treatment.

Following the Supreme Court's ruling in Lalit Kumar Jain v. Union of India, which said that resolution plan approval doesn't free guarantors from liability, the regulator suggested amending the CIRP Regulations. The amendment will clearly state that a resolution plan doesn't remove creditors' rights to pursue guarantors and enforce guarantees.

The regulator has also proposed that registered valuers submit a single valuation report for the corporate debtor as a whole.

Currently, two registered valuers are appointed to estimate the fair and liquidation values of the CD. If their estimates differ significantly (by 25% or more), a third valuer is appointed, and the average of the two closest estimates is used.

The Companies Rules, 2017, allow a valuer to get input or a separate valuation from another registered valuer for any asset class if needed.

However, there is inconsistency between these valuation rules and the CIRP regulations. The valuation rules suggest a single valuer can handle the entire valuation, while the CIRP regulations suggest separate valuers for each asset class. To resolve this inconsistency, the regulator proposes amending the CIRP Regulations to align with the valuation rules.

For companies with assets up to Rs 1,000 crore and MSMEs, the regulator has suggested that only one valuer should be appointed by default.

Public comments on these proposals can be submitted by July 10.