NCLT clarified that dissolution of a corporate debtor does not extinguish liability of promoters, directors, or guarantors, allowing recovery proceedings against them despite liquidation of the company.
Dissolution of Corporate Debtor Doesn’t Bar Proceedings Against Promoters, Directors: NCLT
In a significant ruling, the National Company Law Tribunal (NCLT) held that the dissolution of a corporate debtor does not bar insolvency or recovery proceedings against promoters, directors, and personal guarantors. The order, involving the liquidation of assets worth ₹148.6 crore, underscored that personal liability under the Insolvency and Bankruptcy Code (IBC), 2016, survives corporate dissolution.
The Tribunal emphasized that the corporate veil may be lifted where personal guarantees have been invoked or where directors have acted in breach of fiduciary duties. Quoting Section 27 of the IBC, the NCLT observed that the liability of personal guarantors is co-extensive with the principal debtor and remains enforceable regardless of the corporate entity’s status. Similarly, directors’ duties under Sections 166 and 309 of the Companies Act, 2013, continue to attract scrutiny post-dissolution.
This decision reinforces the principle that insolvency proceedings are not solely against corporate entities but extend to individuals who control or benefit from them. Practitioners must now ensure that recovery strategies include parallel proceedings against key managerial personnel, even after corporate liquidation.
Citations
- Insolvency and Bankruptcy Code, 2016, Section 27
- Companies Act, 2013, Sections 166, 309
