REPAYMENT PLAN IN INSOLVENCY RESOLUTION PROCESS OF PERSONAL GUARANTORS TO CORPORATE DEBTOR

[Mr. M. GOVINDARAJAN]

Introduction

In my earlier article entitled ‘ADMISSION OF APPLICATION ON INSOLVENCY RESOLUTION PROCESS OF PERSONAL GURANTORS OF CORPORATE DEBTOR’ on 28.02.2024 in this website I narrated in detail the procedure for admission of application on insolvency resolution process of personal guarantors of corporate debtor.  In this article the procedure after the approval of the application the procedure involved is discussed in detail.

Public Announcement

Once the application is admitted the Interim Resolution Professional, on behalf of the Adjudicating Authority shall issue a public announcement within 7 days from the date of admission of order inviting claims from the creditors of the personal guarantor.  The public notice shall contain the following-

• details of the order admitting the application;
• particulars of the resolution professional with whom the claims are to be registered; and
• the last date for submission of claims.

The last date for submission of claims shall be within 21 days from the date of issue of the public notice.  The said notice shall be published in at least one English and one vernacular newspaper which are in circulation in the state where the debtor resides.  A copy of the same shall be affixed in the premises of the Adjudicating Authority and placed on the website of the Adjudicating Authority.

Submission of claims

A creditor shall submit its claim along with proof to the resolution professional in Form B.  The claim shall be submitted on or before the last date mentioned in the public notice.  The claim shall be sent by way of electronic communications or through courier, speed post or registered letter.  The creditor shall provide to the resolution professional, personal information and such particulars as may be prescribed.  The creditor shall bear the costs relating to submission of the claim, including proof.  A creditor may prove its claim on the basis of records available in an information utility, or any other documentary evidence which substantiates the existence of claim.

Verification of claims

On receipt of claims from the creditors the Resolution Professional shall verify the said claims.  He may call for such other evidence or clarification as he deems fit from a creditor for substantiating the whole or part of its claim.  He shall verify each claim as soon as it is received.   If the amount claimed by a creditor is not precise due to any reason, the resolution professional shall make the best estimate of the amount of the claim based on the information available with him.  He shall modify the amounts of claims admitted, including the estimates of claims as soon as may be practicable, after he comes across additional information warranting such revision, till the approval of a repayment plan by the creditors.  If the claims denominated in foreign currency the same shall be valued in Indian currency at the official exchange rate as on the resolution process commencement date.

List of creditors

After verification of the claims the Resolution Professional shall prepare a list of creditors on the basis of information available in the application filed under Section 94(1) or Section 95(1) and on the basis of claims received by him from the creditors.  The list of creditors shall be prepared within 30 days from the date of notice.  The list of creditors shall contain the names of creditors, amount claimed, amount admitted and security interest, if any, in respect of such claims. 

The Resolution Professional shall-

• make the list of creditors available for inspection by the persons who submitted claims with proof;
• serve a copy of the list of creditors to the guarantor;
•  make available the list of creditors on the website, if any, of the guarantor;
• present the list of creditors at the meeting of creditors; and
• file a certified copy of the list of creditors with the Adjudicating Authority along with the repayment plan.

Repayment plan

The debtor shall prepare, in consultation with the resolution professional, a repayment plan containing a proposal to the creditors for restructuring of his debts or affairs.  The repayment plan shall provide the following-

• the term of the repayment plan and its implementation schedule, including the amounts to be repaid and dates of repayment to creditors;
• the source of funds that will be used to pay resolution process costs and that such payment shall be made in priority over any creditor;
• a minimum budget for the duration of the repayment plan, to cover the reasonable expenses of the guarantor and members of his immediate family to the extent they are dependent on him, provided that at least 10% of the realizable income of the guarantor shall be utilized for repayment of debts;
•  financing required for implementation of the repayment plan;
• if the guarantor has any business, the manner in which it is proposed to be conducted during the course of the repayment plan, and the role of the resolution professional;
•  the manner in which the funds invested or otherwise dealt with, pending repayment to creditors;
• the functions to be undertaken by the resolution professional, including supervision and implementation of the repayment plan;
• variation of onerous terms of a contract or transaction involving the guarantor;
• the details of excluded assets and excluded debts of the guarantor; and
• terms and conditions for the discharge of the guarantor.

The repayment plan may provide the following-

•  transfer or sale of all or part of the assets of the guarantor along with the mode and manner of such sale;
• administration or disposal of any funds of the guarantor;
• satisfaction or modification of any security interest;
• reduction in the amount payable to creditors;
• curing or waiving of any breach of a debt due from the guarantor;
• modification in the terms of repayment of any debt due from the guarantor;
• part of the income of the guarantor to be used for the repayment of the debt, and the manner of calculating the income of the guarantor;
• the manner in which funds held for the purpose of repayment to creditors, and not so repaid at the end of the repayment plan, are to be dealt with; and
• such other matters as may be required by the creditors.

The repayment plan may authorize or require the resolution professional to-

• carry on the debtor's business or trade on his behalf or in his name; or
• realize the assets of the debtor; or
•  administer or dispose of any funds of the debtor.

It shall also include the following-

• justification for preparation of such repayment plan and reasons on the basis of which the creditors may agree upon the plan;
• provision for payment of fee to the resolution professional;
• such other matters as may be specified.

Report of Resolution Professional

The resolution professional shall submit the repayment plan along with his report on such plan to the Adjudicating Authority within a period of 21 days from the last date of submission of claims.  The report shall include-

• the repayment plan is in compliance with the provisions of any law for the time being in force;
• the repayment plan has a reasonable prospect of being approved and implemented; and
• if there is a necessity of summoning a meeting of the creditors to consider the repayment plan?

The resolution professional recommends that a meeting of the creditors is not required to be summoned, reasons for the same shall be provided.

If the Resolution Professional is of the opinion that a meeting of the creditors should be summoned the report shall also specify the date, place and time of  the meeting to be held.  Then he shall issue summons calling the meeting of the creditors at least 14 days before the date fixed for such meeting.  The Resolution Professional shall conduct the meeting of creditors.  In the meeting of the creditors, the creditors may decide to approve, modify or reject the repayment plan.  The resolution professional shall ensure that if modifications are suggested by the creditors, consent of the debtor shall be obtained for each modification.   A creditor shall be entitled to vote at every meeting of the creditors in respect of the repayment plan in accordance with the voting share assigned to him.  Secured creditors shall be entitled to participate and vote in the meetings of the creditors.

The repayment plan or any modification to the repayment plan shall be approved by a majority of more than three-fourth in value of the creditors present in person or by proxy and voting on the resolution in a meeting of the creditors. The resolution professional shall prepare a report of the meeting of the creditors on repayment plan.

Order of Adjudicating Authority

The Adjudicating Authority shall by an order approve or reject the repayment plan on the basis of the report of the meeting of the creditors submitted by the resolution professional.  Where a meeting of creditors is not summoned, the Adjudicating Authority shall pass an order on the basis of the report prepared by the resolution professional.  The order of the Adjudicating Authority may provide for directions for implementing the repayment plan.  If the Adjudicating Authority is of the opinion that the repayment plan requires modification, it may direct the resolution professional to re-convene a meeting of the creditors for reconsidering the repayment plan.  The repayment plan shall take effect as if proposed and bind on creditors mentioned in the repayment plan and the debtor.

Implementation

The resolution professional shall supervise the implementation of the repayment plan. He may apply to the Adjudicating Authority for directions, if necessary, in relation to any particular matter arising under the repayment plan and the Adjudicating Authority may issue directions to the resolution professional.  The resolution professional shall within fourteen days of the completion of the repayment plan.  The resolution professional may apply to the Adjudicating Authority to extend the time for such further period not exceeding seven days.

Discharge order

The resolution professional shall apply to the Adjudicating Authority for a discharge order in relation to the debts mentioned in the repayment plan and the Adjudicating Authority may pass such discharge order.