IBBI Proposes Measures To Improve Real Estate Insolvency Resolution

(The Corner Office Journal) -- The Insolvency & Bankruptcy Board of India (IBBI) has proposed a slew of amendments to enhance the efficiency and effectiveness of real estate insolvency proceedings under the Insolvency & Bankruptcy Code (IBC).

The insolvency regulator, which released a discussion paper on issues related to the real estate sector, is seeking public comments by 27 November to make necessary amendments in the regulations.

The discussion paper is based on the recommendations of a recent study group, constituted by the Indian Institute of Insolvency Professionals of ICAI (IIIPI), according to the IBBI. The study focused on “Improving real estate resolutions under IBC and coordination with Real Estate Regulatory Authority (RERA),” it said.

The regulator said the discussion paper also incorporates issues and concerns raised during recent consultations with resolution applicants, insolvency professionals, and other key stakeholders in the insolvency resolution process.

The IBBI’s proposals cover a range of critical areas, including:

1. Proposed inclusion of land authorities in committee of creditors (CoC) meetings

2. Handling cancelled land allotments in real estate insolvency cases

3. Empower CoC to facilitate participation of associations of allottees as resolution applicants

4. Clarification about inclusion of interest in homebuyers' claims in corporate insolvency resolution processes (CIRP)

5. Representation of large numbers of creditors through facilitators

6. Proposal to disseminate CoC minutes of the meeting to all creditors in class of real estate projects

7. Streamlining possession handover in real estate projects

Following are the key proposed measures:

Inclusion of land authorities in meetings

=> The proposed amendments would mandate the inclusion of competent authorities as invitees to CoC meetings in cases involving real estate companies, without voting rights.

=> The presence of such competent authorities in CoC meetings can enhance transparency and build confidence among homebuyers and other stakeholders in the resolution process.

Handling cancelled land allotments

=> The regulator proposed to amend the regulations to include a provision requiring the insolvency professional to report to the CoC and adjudicating authority when land allotment has been canceled and possession taken back by authorities before the insolvency commencement date in real estate insolvency cases.

=> This information will enable the CoC to make an informed decision on alternatives such as withdrawal, early liquidation/dissolution, or continuance of CIRP.

Empowering CoC to facilitate participation of allottees’ associations

=> The proposal aims to amend the regulations to expressly provide that the CoC may approve relaxations to the eligibility criteria, earnest money deposit, and performance security requirements for allottee associations or groups that represent at least 10% of allottees or 100 allottees, whichever is higher.

Clarification about inclusion of interest in homebuyers' claims

=> The amendment proposes to clarify that the provision of interest at 8% per annum should also be considered as part of the claim for the purpose of resolution plans and distributions under Section 53 of the IBC.

=> The amendment would create consistency by aligning the calculation of voting rights with the valuation of claims, resulting in a more coherent framework within the insolvency process. It could also potentially reduce litigation by providing for interest within the insolvency framework, thereby reducing the need for homebuyers to seek orders from other forums.

Representation of large numbers of creditors through facilitators

=> The amendment proposes to allow the appointment of facilitators for large classes of creditors, primarily to improve communication and representation in the CIRP.

Proposal to disseminate CoC meeting minutes

=> The amendment aims to facilitate the resolution professional to place the minutes of the CoC meeting on the website where all the CIRP-related information is published.

=> The access to minutes of meeting in the real estate insolvency cases to allottees of real estate project will ensure them to stay informed about project developments, act as single authoritative source of information, provide valuable input and feedback. This will also enhance transparency and counter rumors and misinformation.

Streamlining possession handover in real estate projects

=> The amendment proposes to allow resolution professional, with the approval of CoC, to handover the ownership of a plot, apartment, or building to the allottees through transfer during the resolution process to facilitate the smooth handover of occupied units or where possession has been transferred to homebuyers.

=> The amendment also proposes to permit the resolution professional, with the approval of CoC, to hand over the possession of units to the allottees on ‘as is where is’ basis or on payment of balance amount, if any, after taking in to account the funds due and funds required for completing the unit to avoid delays due to unnecessary holds-ups.

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