The Insolvency and Bankruptcy Board of India (IBBI) has introduced a series of reform proposals aimed at simplifying the insolvency process for real estate firms and boosting protections for homebuyers, as published by the Hindustan Times.
In an effort to expedite the transfer of ownership to buyers awaiting the registration of housing units in projects undergoing insolvency resolution, the IBBI recommends that buyers in possession of plots, flats, or buildings should be granted ownership if they have cleared all dues, contingent on approval by the committee of creditors (CoC).
The IBBI’s discussion paper, issued Nov. 7, suggests that resolution professionals (RP) should be permitted to transfer ownership of properties to allottees with CoC approval, expediting the handover process for homebuyers who have taken possession. To further reduce delays, the IBBI proposes allowing RPs to transfer units “as is where is” or upon payment of any outstanding balance, once necessary funding for unit completion has been secured, also with CoC approval.
The proposed amendments seek to address the growing backlog of unresolved real estate insolvencies, including prominent cases involving companies like Jaypee, Today Homes, and Logix. The IBBI has outlined seven proposed regulatory changes aimed at improving the efficiency of real estate insolvency proceedings under the Insolvency and Bankruptcy Code (IBC).
A significant proposal within the discussion paper is to empower the CoC to allow associations of allottees, representing at least 10% of total buyers or 100 allottees (whichever is higher), to participate as resolution applicants. This change would enable these associations to submit bids for assets under insolvency proceedings by relaxing eligibility, earnest money, and performance security requirements, thereby enhancing buyer involvement in the resolution process.
The IBBI has recommended that an annual interest rate of 8% be included as part of the claim in resolution plans, a provision expected to streamline voting rights calculation and ensure consistent claim valuation. The proposal aims to reduce litigation by allowing homebuyers to receive interest within the insolvency process, potentially limiting the need for external judicial interventions.
To increase clarity and compliance in real estate insolvencies, the IBBI suggests inviting land authorities as non-voting attendees in CoC meetings, recognizing their integral role in these projects. While only financial creditors currently hold CoC representation, the inclusion of land authorities is expected to support regulatory adherence and improve the viability of resolution plans.
The IBBI also proposes permitting the appointment of multiple facilitators to enhance representation and communication among large groups of creditors, addressing the challenges posed by diverse stakeholders.
The discussion paper further recommends that RPs report instances of canceled land allotments to the CoC to enable informed decision-making, whether to continue resolution efforts or opt for liquidation. Additionally, it advocates for CoC meeting minutes to be accessible to all creditors through a secure online portal, a measure intended to foster transparency and mitigate misinformation within the insolvency process.
The IBBI has invited public comments on the proposed changes until Nov. 27, 2024.