IBBI Discussion Paper: 4 Proposed Safeguards for Personal Guarantor Insolvency Resolution

IBBI has released a Discussion Paper proposing four amendments to the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Regulations, 2019 ("IRP Regulations"), aimed at closing gaps between the safeguards available to creditors under the corporate insolvency resolution process (CIRP) and those available in the insolvency resolution process (IRP) of personal guarantors. The four proposals cover: excluding related parties of the guarantor from voting on the repayment plan, requiring identification and reporting of avoidance transactions, mandating valuation of the guarantor's assets, and requiring detailed recording of creditors' deliberations. Public comments, along with draft regulation text, are invited until October 3, 2026.

Background: Why This Discussion Paper?

Chapter III of Part III of the Insolvency and Bankruptcy Code, 2016 (IBC) governs the insolvency resolution process for personal guarantors to corporate debtors, implemented through the IRP Rules, 2019 and the IRP Regulations, 2019. IBBI reviewed this framework against the parallel framework for corporate insolvency resolution under the CIRP Regulations, 2016, and against the Liquidation Process Regulations, 2016 and the Bankruptcy Process (PGB) Regulations, 2019 for valuation-related comparisons.

That review identified four specific respects in which safeguards available to creditors of a corporate debtor under CIRP have no counterpart in the personal guarantor resolution process, even though IBBI considers the underlying concern identical regardless of whether the debtor is a company or an individual.

What's Proposed? A Snapshot

Proposal 1: Excluding Related Parties of the Guarantor from Voting

Under CIRP, a "related party" of the corporate debtor cannot vote in the committee of creditors. In the personal guarantor process, only an "associate" of the guarantor is barred — a materially narrower category. IBBI's example: a company that habitually acts on the guarantor's advice or instructions, without the guarantor holding shares in it or controlling its board, would qualify as a "related party" but fall outside the definition of "associate" — meaning such an entity could presently vote on a repayment plan that directly determines the extent of the guarantor's discharge from debt.

IBBI proposes that a related party of the guarantor, as defined in Section 5(24A) of the Code, be assigned a Nil voting share, and that the resolution professional's creditor list separately indicate which creditors are related parties of the guarantor.

Draft Amendment: Regulation 9(1) would require the creditor list to separately indicate related-party status; Regulation 11(2) would gain a proviso fixing the voting share of a related party of the guarantor at Nil.

📝 In Plain English: Right now, someone closely connected to the guarantor — even without owning shares or controlling the guarantor — could still vote on a repayment plan that benefits that very guarantor. This proposal closes that loophole by using the same broad "related party" test already used to block such votes in company insolvencies.

Proposal 2: Identifying and Reporting Avoidance Transactions

Sections 164, 165 and 167 of the Code allow a bankruptcy trustee to seek orders on avoidance transactions — undervalued transactions, preferential transactions and extortionate credit transactions — entered into by a bankrupt individual within specified look-back periods; Section 164A allows reversal of undervalued transactions found to be deliberately fraudulent. Under CIRP, resolution professionals must report preferential (Section 43), undervalued (Section 45), extortionate credit (Section 50) and fraudulent (Section 66) transactions to the committee of creditors before a resolution plan vote. No equivalent obligation currently exists in the personal guarantor resolution process — even though such transactions bear directly on the value actually available to creditors and on the guarantor's disclosure honesty.

IBBI proposes a new Regulation 10A requiring the resolution professional to examine whether the guarantor was party to a transaction under Sections 164, 164A, 165 or 167, record findings with supporting particulars, and present them to creditors before the repayment plan vote. With creditors' approval, the resolution professional could also take the same action a bankruptcy trustee could take under the corresponding section — bringing that power forward to a stage where it can still meaningfully affect the resolution outcome, rather than only after a bankruptcy order.

Practical Example: If a guarantor transferred a property to a family member below market value shortly before initiating the resolution process, the resolution professional would, under this proposal, be required to flag this to creditors as a potential undervalued transaction before they vote on the repayment plan — rather than such a transaction surfacing only if the process later escalates to bankruptcy.

Proposal 3: Mandatory Valuation of the Guarantor's Assets

The IRP Regulations currently do not require valuation of the guarantor's assets at any stage of the resolution process — unlike CIRP (Regulations 27 and 35, requiring fair value and liquidation value from registered valuers), liquidation proceedings, or even the bankruptcy process for personal guarantors. Without independent valuation, IBBI notes, creditors lack an objective basis to assess the adequacy of security offered, the reasonableness of the proposed repayment, or the recovery they might alternatively obtain through bankruptcy.

IBBI proposes a new Regulation 10B requiring the resolution professional to appoint a registered valuer to determine the fair value and realisable value of the guarantor's assets, per valuation standards notified by IBBI, before the repayment plan is placed before creditors. The fair value, realisable value and full valuation report must then be placed before the creditors alongside the plan.

Note: The draft text ties this valuation timeline to the meeting of creditors convened to consider the repayment plan under Regulation 17A of the IRP Regulations.

Proposal 4: Recording Creditors' Deliberations on the Repayment Plan

Currently, minutes of the creditors' meeting under Regulation 15 record only how each creditor voted — for, against, or abstained — not the substance of their assessment of the plan's feasibility and viability, or their reasoning where the plan offers limited recovery. CIRP Regulation 39(3)(b) already mandates this kind of recording for corporate resolution plans; no equivalent exists for personal guarantors.

IBBI proposes a new sub-regulation 15(2A) requiring the resolution professional to record creditors' deliberations and reasons, having regard to: the amount of admitted claims versus the amount proposed to be paid; the duration and certainty of proposed payments; the guarantor's assets and liabilities (including the fair/realisable value under Proposal 3); the guarantor's income and future repayment capacity; any transaction or conduct of the guarantor bearing on recovery — including diversion, concealment or dissipation of assets, and any avoidance transaction identified under Proposal 2; and the overall feasibility and viability of the repayment plan. Critically, where the proposed payment is significantly lower than admitted claims or the estimated realisable value of assets, creditors must specifically record their commercial rationale for preferring the repayment plan over initiating bankruptcy.

📝 In Plain English: If creditors are about to accept a repayment plan that pays them only a fraction of what they're owed, they will now have to put in writing why they think that's still a better deal than pushing the guarantor into bankruptcy — creating an accountability trail that doesn't exist today.

Who Is Affected?

• Personal guarantors to corporate debtors — subject to more rigorous scrutiny of their assets and past transactions during resolution.
• Creditors of personal guarantors — gaining a Nil-vote safeguard against related-party influence, mandatory valuation data, and a documented rationale requirement for plan approval.
• Insolvency Professionals (RPs) — who would take on new obligations to identify avoidance transactions, coordinate valuations, and document creditors' reasoning in detail.
• Registered Valuers — who would be newly engaged specifically for personal guarantor resolution processes.
• Insolvency Professional Agencies and Entities — relevant to training and oversight of RPs handling personal guarantor cases.

What Should Practitioners Watch?

This is a discussion paper, not notified law. No compliance obligation currently arises. Stakeholders should track:

• Comment deadline: Comments must be submitted electronically by October 3, 2026, via the "Public Comments" section on www.ibbi.gov.in.
• Structured submission process: Commenters select a stakeholder category (Corporate Debtor, Personal Guarantor to a Corporate Debtor, Proprietorship firm, Partnership firm, Creditor to a Corporate Debtor, Insolvency Professional, IPA, IPE, Academic, Investor, or Other), and choose between General Comments (on inter/intra-regulation or Code inconsistencies, implementation difficulty, or missing/unnecessary provisions) or Specific Comments tied to a numbered Proposal.
• Statutory basis for final regulations: IBBI intends to make regulations under Section 196 read with Section 240 of the Code after considering comments received.
• Interlinkage between proposals: Proposal 4's deliberation-recording requirement explicitly draws on the valuation data from Proposal 3 and the avoidance-transaction findings from Proposal 2 — meaning feedback on one proposal may need to account for its effect on the others.

Frequently Asked Questions

What is this Discussion Paper about?
It proposes four amendments to the IRP Regulations, 2019 governing the insolvency resolution process of personal guarantors to corporate debtors, aimed at aligning creditor safeguards with those already available under CIRP.

Is this already a binding regulation?
No. It is a discussion paper with draft regulation text, open for public comment until October 3, 2026. IBBI will finalise regulations under Section 196 read with Section 240 of the Code after considering feedback.

Who currently cannot vote on a personal guarantor's repayment plan?
Only an "associate" of the guarantor, a narrower category than "related party." The proposal would extend the voting exclusion to related parties as defined in Section 5(24A) of the Code.

Will personal guarantors' assets need to be valued going forward?
Under the proposal, yes — a registered valuer would need to determine the fair value and realisable value of the guarantor's assets before the repayment plan is presented to creditors.

What happens if creditors accept a repayment plan offering very low recovery?
Under Proposal 4, if the amount proposed is significantly lower than admitted claims or the estimated realisable value of assets, creditors would be required to specifically record their commercial rationale for preferring the plan over a bankruptcy process.

How can stakeholders submit comments?
Through the "Public Comments" section on the IBBI website, selecting a stakeholder category and choosing General or Specific (proposal-wise) comments, by October 3, 2026.

Does this affect corporate insolvency resolution (CIRP)?
No. These proposals are specific to the insolvency resolution process for personal guarantors to corporate debtors; the CIRP framework is used only as a comparative reference point in this paper.

CorpLawUpdates Analysis

The four proposals share a common thread: each imports a safeguard that already exists for corporate debtors into the personal guarantor framework, on the reasoning that the underlying creditor-protection concern doesn't change based on whether the debtor is a company or an individual. For insolvency professionals handling personal guarantor cases, Proposals 2 and 3 carry the most immediate operational weight if finalised — requiring active investigation of avoidance transactions and coordination with registered valuers within the resolution process timeline, tasks that currently sit outside the IRP Regulations entirely. Proposal 4's documentation requirement effectively creates an audit trail that could also serve as a defence for creditors and RPs if a low-recovery repayment plan is later challenged, which may itself shape how proposals 2 and 3 are received by industry commentators during the consultation.