The Insolvency and Bankruptcy Board of India (IBBI) has proposed reforms to streamline the insolvency process for real estate companies and enhance protection for homebuyers. For thousands of buyers awaiting registration of housing units in projects undergoing the Bankruptcy resolution process, the IBBI has proposed that ownership of the plot, apartment or building should be transferred to buyers who are in possession of the property during the bankruptcy resolution of the real estate company if they do not owe dues and subject to committee of creditors' approval.
These amendments have been proposed to enhance the efficiency and effectiveness of real estate insolvency proceedings under the Insolvency and Bankruptcy Code (IBC) rules. Comments may be submitted electronically by 27th November, 2024, IBBI said.
The IBBI has proposed as many as seven changes to the regulations that govern the insolvency resolution in the real estate sector.
The regulator has also proposed to empower the CoC to facilitate the participation of association of allottees as resolution applicants. IBBI has also said that provisions of interest at 8% per annum must be considered as part of the claim for distribution of resolution proceeds.
Another major proposal in the discussion paper is the inclusion of land authorities in Committee of Creditors (CoC) meetings as invitees without voting rights. In corporate insolvency resolution processes (CIRP) involving real estate companies, land authorities play a crucial role but currently lack mandatory representation in the CoC, IBBI said.
Currently, only financial creditors have representation in the CoC, leaving out land authorities despite their critical role in real estate projects. Their inclusion is expected to enhance and bring clarity on regulatory compliance, and ultimately improve the feasibility of resolution plans, it added.
The discussion paper also highlighted issues related to cancelled land allotments in insolvency cases, wherein the IBBI proposed that resolution professionals report such cancellations to the CoC, allowing stakeholders to make informed decisions on whether to pursue liquidation or continue with the resolution process.
It has also suggested facilitating creditor representation by allowing for multiple facilitators in cases with large numbers of creditors primarily to improve communication and representation.
IBBI has recommended that the meeting minutes of CoC for real estate projects will be accessible to all creditors through a secure online system. This will in turn enhance transparency and counter rumours and misinformation.
