IBBI seeks tighter regulations around personal guarantors, valuation of insolvent firms
Before the recent amendment to the Insolvency and Bankruptcy Code (IBC), a temporary moratorium would come into effect from the moment a bankruptcy petition was filed against personal guarantors. This situation prevented the creditors from continuing the collection process while the application was pending in the judicial authority.
On the other hand, such a regulation allowed guarantors to resort to various tricks to delay the acceptance of applications. To rectify this, the amended law removed this automatic protection, requiring IBBI to amend implementing regulations accordingly.
The Insolvency and Bankruptcy Board of India (IBBI), in a discussion paper, also suggested adding a clarification explaining that since the interim moratorium does not apply due to the amendment, creditors can continue or initiate such recovery proceedings pending as on May 26, 2026, when the amended law comes into force.
The regulator has also sought to tighten regulation on appointment of registered valuers for stressed firms, requiring committee of creditors (CoC) approval for the same. It also wants valuation reports to be kept confidential until resolution plans are received.
The regulator said in its discussion paper that registered valuers are currently appointed by a stressed firm’s resolution expert, without any involvement of the creditors’ committee, even though valuation outputs are central to the committee’s assessment of resolution plans.
Additionally, there is no prescribed deadline for registered valuers to submit valuation reports or any standard procedure for keeping the report confidential between submission and disclosure to the committee.
The regulator now intends to make it mandatory for registered valuers to submit their reports in a sealed cover or in secure electronic mode by the deadline for receipt of resolution plans. The valuation report in the sealed cover will only be opened before the Supreme Court on the same date and confidentiality will be maintained until then.
