Personal Guarantors and Resolution Plans: The Effect of Corporate Debtor Resolution on Guarantor Liability

Abstract

Insolvency and Bankruptcy Code 2016 (IBC) clears the corporate debtor’s liabilities via a resolution plan, yet the personal guarantee which secures the said debt stays unaffected post completion of the proceedings. This paper will analyze the reasons behind the Indian judiciary’s refusal to interpret the resolution plan approval as discharge of the personal guarantor’s liability, from the moratorium issue till the quantum and subrogation controversy. This paper will contend that the result is not merely a statutory lacuna but an intentional design of Parliament in joining the corporate and personal insolvency forums just to make sure that guarantors would be liable for recovery of the haircut that was taken by the resolution plan. Contribution of the paper does not lie in addressing discharge issue, since it has become a settled position by now; instead it will focus on issues which remain unresolved around it, such as quantum of liability and the time to enforce a guarantor who was actually paid off.