The Appellate Tribunal held that personal guarantors who have ...

Personal guarantors without actual payment can't be financial creditors or get voting shares in insolvency resolution.

November 29, 2024

Case Laws     IBC     AT

The Appellate Tribunal held that personal guarantors who have not made any payment towards discharge of their guarantee cannot be considered financial creditors of the corporate debtor, nor can they be allocated voting shares in the corporate insolvency resolution process. The statutory scheme under the Insolvency and Bankruptcy Code requires that for a transaction to qualify as a financial debt, in addition to establishing a guarantee or indemnity, a liability in respect of the guarantee must also be established. Mere issuance of a guarantee without any actual payment does not create a financial debt. The Tribunal upheld the Adjudicating Authority's order excluding the appellants, who were personal guarantors but had not made any payments, from the committee of creditors and affirmed that there was no violation of natural justice. The appeal was dismissed.

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