Personal guarantor recovery set to surge under IBC

The recovery rate from personal guarantors under the Insolvency and Bankruptcy Code (IBC) currently stands at 5.22 per cent. This rate is anticipated to rise following the Supreme Court’s recent ruling affirming the constitutionality of the IBC provisions regarding Personal Guarantors’ Insolvency Resolution, Care Edge Ratings said in a report.

This ruling implies that the personal assets of guarantors can now be utilised to settle outstanding debts owed to creditors.

Personal guarantees have come into the limelight as a recent Supreme Court judgement upheld the constitutionality of IBC provisions on Personal Guarantors’ Insolvency Resolution and dismissed over 200 petitions which had challenged the legal validity of such provisions.

Only 21 have yielded approval of repayment plans and have realised Rs 91.27 crore which is 5.22 per cent of their approved claims. About 62 cases have been withdrawn/rejected/dismissed, the report said.

Of the over 2,000 ongoing CIRPs, there has been a delay of more than 270 days for the completion of the process of 67 per cent of ongoing CIRPs in September 2023 as compared to 73 per cent in September 2021 and 63 per cent in September 2022. The share has broadly moved to the higher number of days tier. Further, we can observe that the ‘more than 180 days but less than 270 days’ segment is the second largest highlighting the significant delays in the process.

Nearly 55 per cent of the cases are pending for more than two years and another 20 per cent of the cases pending for more than one year, the report said.

Post the implementation of the IBC, the overall recovery rate till Q4FY22 in India reached 32.9 per cent. The recovery rate for Q2FY24 stood at 33.01 per cent, while the overall recovery rate reached 31.85 per cent till Q2FY24. Consequently, for the cases which have been resolved, the creditors have continued to face a haircut of approximately 68 per cent on admitted claims.