The promoters of Dewan Housing Finance have given personal guarantees to more than Rs. 80,000 crore of loans.

In the books, filings and the annual report for March 2019 the promoters of the Dewan Housing Finance have given more than Rs. 80,000 crore personal guarantees of loans.

Personal guarantees cover various borrowings and include guarantees on Rs. 42,344 crore secured non-convertible debentures, Rs. 31,975 crore worth bank term loans, Rs. 2,435 crore NHB term loans and foreign debt worth Rs. 2,807 crore. The Wadhwan family’s total debt is Rs. 82,949 crore, covered by personal guarantees.

After the rules got changed last month, DHFL became a first financial services company to be admitted to the bankruptcy courts on Monday. The Reserve Bank of India has replaced the board and appointed an administrator.

Promoters usually give personal guarantees, but in light of last month’s changes to the insolvency and bankruptcy code, they assume a new significance. The corporate affairs ministry extended IBC’s scope to personal guarantors to corporate debtors, with effect from 1 December.

This change means that personal guarantors can also obtain relief under the insolvency system and will help to resolve and disposal proceedings more efficiently.

MS Sahoo, chairman of the Insolvency and Bankruptcy Board of India (IBBI), said that in case of any default the new rules will get prospective and also the law of limitation will be applied.

“When the company does not have a suitable settlement strategy and goes into liquidation or after the corporation has pending dues, the lenders will be able to seek recovery from those who have extended the personal guarantee,” said Sudip Mahapatra, partner at law firm S&R Associates.

“When we see actual cases setting precedents there will be more clarification on the subject.” Strong guarantees do not mean that banks seize the assets of the DHFL proponents.

A successful resolution will help banks and other lenders to receive part of their money so that they can then choose to claim the full amount from the personal guarantees as well.  Failure to settle or liquidation would bring more pressure on the promoters and the reforms to the insolvency code would aid the courts to seek relief.