The Insolvency and Bankruptcy Board of India (IBBI) has proposed significant changes to the insolvency-resolution framework for personal guarantors to corporate debtors, including a major safeguard under which creditors who are related parties of the personal guarantor would be assigned nil voting share in meetings of creditors.
The proposal forms part of IBBI's Discussion Paper dated 12 September 2026 — “Strengthening safeguards in the Insolvency Resolution Process for Personal Guarantors to Corporate Debtors.” It seeks to address potential conflicts of interest and strengthen the independence and transparency of creditor voting in personal-guarantor insolvency proceedings.
What is the issue under the present framework?
Under the existing framework, Section 109(2) of the Insolvency and Bankruptcy Code, 2016 restricts an associate of the debtor from participating and voting in a meeting of creditors.
IBBI has, however, identified an important gap.
The concept of a “related party” in relation to an individual is wider than the concept of an “associate.” Consequently, a creditor may have a sufficiently close relationship with the personal guarantor to create a potential conflict of interest but may not necessarily fall within the narrower category currently restricted from voting.
According to IBBI, this can create a risk that persons connected with the guarantor could influence voting on the guarantor's repayment plan.
What exactly has IBBI proposed?
IBBI proposes requiring the Resolution Professional (RP) to identify whether each creditor is a related party of the personal guarantor.
Where a creditor is found to be a related party, the RP would:
assign NIL voting share to that creditor.
The related-party creditor's claim would not disappear merely because its voting share becomes nil. The proposal is aimed at removing its ability to influence the commercial decision on the repayment plan, rather than automatically extinguishing the underlying debt.
This distinction is important.
Why is voting power so important?
In personal-guarantor insolvency, creditors consider and vote on the repayment plan proposed for resolving the guarantor's debts.
That plan can determine matters such as:
- how much creditors ultimately recover;
- the period over which payments will be made;
- treatment of the guarantor's assets;
- restructuring or modification of debts; and
- the extent of financial relief ultimately available to the guarantor.
If creditors closely connected with the guarantor are permitted to exercise substantial voting power, they could potentially influence whether a repayment plan is approved or rejected.
IBBI's proposal seeks to ensure that the commercial decision is effectively made by independent creditors whose interests are genuinely at risk.
Why has IBBI proposed the change now?
IBBI's discussion paper raises broader concerns regarding the integrity of the personal-guarantor insolvency process.
The regulator wants stronger safeguards to ensure that the process cannot be influenced through:
- connected creditors;
- related-party claims;
- questionable transactions before insolvency;
- inadequate valuation of guarantor assets; or
- repayment plans offering disproportionately low recovery without adequate commercial justification.
The voting-right proposal therefore forms part of a much wider reform package rather than being an isolated amendment. CA Sansaar