Creditors Anticipate 1% Recovery from Personal Guarantees
NEW DELHI: The Insolvency and Bankruptcy Code (IBC) has facilitated the recovery of approximately 31% of claims in corporate insolvency cases. However, the recovery rate for amounts tied to personal guarantees remains significantly low. According to the latest data from the Insolvency and Bankruptcy Board of India (IBBI), of the 5,186 applications filed by creditors and companies since December 2019, resolution professionals have been appointed in only about 41% of cases.
The data reveals that just 64 cases have resulted in approved repayment plans, yielding a total recovery of Rs 235 crore, which is roughly 1% of the admitted claims. This translates to an average realization of Rs 3.7 crore per case. The slow pace of admissions and resolutions has raised concerns among stakeholders.
Personal Guarantees and Recovery Challenges
Most personal guarantees were provided by promoters of companies, including notable names like the Ruias of Essar and the Dhoots of Videocon. These guarantees were intended to secure loans or loan restructuring for companies that ultimately defaulted. The IBC allows banks and creditors to invoke provisions to recover dues from these guarantors when claims are not fully realized through the corporate insolvency resolution process.
Current data indicates that the total amount recovered from guarantors will likely be less than one-third of the overall claims. The law stipulates that a repayment schedule must be agreed upon, but the effectiveness of this provision remains in question. Additionally, while several avoidance claims have been filed based on forensic audits of companies undergoing resolution, the IBBI has not disclosed the amounts realized from these claims. The data shows avoidance transactions exceeding Rs 4.6 lakh crore across 2,132 cases.
In its first decade, the IBC has acted as a deterrent for company promoters who default on payments. Over 30,000 cases filed before the National Company Law Tribunal (NCLT) were resolved at the pre-admission stage through withdrawals, involving amounts estimated at nearly Rs 14 lakh crore.
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