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Personal Guarantors to Debtors Required the ‘Homeric’ Moratorium’s Aegis

Yash Sinha

Companies depend on financial borrowing for a flourishing business. Lenders hesitate less when the company’s personnel assure repayment by becoming its guarantors. That is, such personnel are the kind of sureties who will pay if their company is unable to repay. If the company later becomes insolvent, they conserve the company's remaining funds by repaying on its behalf. Yet, the IBC punishes their well-meaning deeds by showering them with a stream of unjust implications. Firstly, the statute compels lenders to pursue the personnel-guarantors exclusively. Secondly, they shall get no reimbursement even if the insolvency resolution is successful. Lastly, the resolution process has been given a licence that exacerbates their overall predicament. During and for resolution, the personnel’s properties may be used for extractive ends. This paper proposes that the existence of the first two problems, besides the third, must be a zero-sum game. That is, if personnel guarantors aid insolvency resolution, the obligation to act as a guarantor must be snoozed away. In other words, the IBC’s ‘moratorium’ for insolvent companies should extend to such personnel-guarantors. This is more of an obvious inference than an assertion. Judiciary favours a complete warding off of legal events that may/aid insolvency resolution. Such guarantors surely serve this function.  Applicability of the concept to such guarantors has another unexpected votary: the law of contracts.  Moratorium’s exclusion of personnel-guarantors, then, is a thread inexplicably snipped out of the woven pattern. This paper proposes that the solvent personnel-guarantors be placed on the steadier perch of Section 14. This revision shall bring moratorium to scale with its dimensions as supposed by the judiciary.

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