BANKS CAN NOW ACT AGAINST PERSONAL GUARANTORS OF A CORPORATE DEBTOR FACING INSOLVENCY PROCEEDING, RULES SUPREME COURT

Referring to an appeal filed by the State Bank of India against a judgment of the National Company Law Appellate Tribunal, the Supreme court ruled that the creditors can proceed against personal guarantors of a corporate debtor even while insolvency proceedings are on.

The law mandates a limited moratorium of 180 days against a corporate debtor. This is to grant the debtor a window within which to find a way to pay the debt. No recovery proceedings can be initiated against the debtor by the creditor during those 180 days. Nor can the debtor’s assets be disposed of in that period.

The top court said that the moratorium envisaged under section 14 of the insolvency and bankruptcy code, which prohibits any suits or proceedings against the company during the insolvency resolution period, will not apply to the personal guarantors.

This move will affect many promoters and directors who are personal guarantors of the insolvent companies.