The Insolvency and Bankruptcy Board of India (IBBI) has released a discussion paper inviting public comments on proposed changes in the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, aimed at improving real estate insolvency resolution under the Insolvency and Bankruptcy Code (IBC). This initiative is intended to enhance the regulatory framework based on findings from the Indian Institute of Insolvency Professionals of ICAI (IIIPI) and inputs from resolution applicants, Insolvency Professionals (IPs), and stakeholders involved in the insolvency resolution process.
Key Areas of Discussion:
Inclusion of Land Authorities in CoC Meetings:
Issue: Land authorities, though vital, currently lack formal representation in the Committee of Creditors (CoC) during insolvency resolution processes involving real estate companies. Their input on land-related matters, including regulatory compliance, is often overlooked, affecting the viability and feasibility of resolution plans.
Proposal: Amend regulations to include land authorities as invitees to CoC meetings (without voting rights), ensuring their perspectives are considered without undermining the authority of financial creditors.
Handling Cancelled Land Allotments:
Issue: In some cases, land allotments are cancelled prior to the insolvency commencement date, leaving the real estate company with no assets for resolution. Currently, no specific provisions exist to address this.
Proposal: Amend regulations to require Insolvency Professionals (IPs) to report cancellations of land allotments to the CoC, allowing informed decisions on whether to continue or liquidate the insolvency process.
Participation of Associations of Allottees as Resolution Applicants:
Issue: Associations of allottees, despite being a significant group of creditors, often face barriers to participating in the resolution process due to stringent eligibility requirements.
Proposal: Clarify that the CoC has the discretion to relax eligibility criteria and other conditions for associations representing at least 10% of allottees or 100 allottees, facilitating their participation in the resolution process.
Interest in Homebuyers' Claims:
Issue: Homebuyers’ claims are subject to inconsistencies, particularly regarding the inclusion of interest in claims. Some insolvency professionals apply the 8% interest rate for voting shares but not for the actual claims, leading to disputes and increased litigation.
Proposal: Clarify that the 8% interest rate should apply to both voting shares and the claims for distribution under Section 53 of the Code, creating consistency in the process.
Representation of Large Numbers of Creditors through Facilitators:
Issue: In cases involving large classes of creditors, a single authorized representative may struggle to effectively represent the class’s interests.
Proposal: Allow the appointment of facilitators to improve communication and representation for large classes of creditors.
Dissemination of CoC Meeting Minutes:
Issue: There are concerns about inadequate communication between authorized representatives (ARs) and homebuyers regarding CoC meetings in real estate insolvencies.
Proposal: Allow minutes of CoC meetings to be shared with all homebuyers via a secured login system, enhancing transparency and providing stakeholders with direct access to information.
Streamlining Possession Handover:
Issue: In real estate cases, possession of units is often pending despite payments being made by allottees. There is also a need to streamline the formal transfer process during the insolvency resolution.
Proposal: Permit Insolvency Professionals to hand over possession or transfer ownership of units to homebuyers, with CoC approval, either on an "as is, where is" basis or upon payment of any outstanding amounts.
Public Comments:
IBBI invites comments on these proposals from all stakeholders involved in real estate insolvency. Comments should be submitted by 27th November 2024 through IBBI’s official website. The comments will help shape the final regulations under the IBC.
Stakeholder Categories for Comments:
Corporate Debtor, Creditor, Insolvency Professional, Investor, and others.
Options for comments include General Comments and Specific Comments addressing inconsistencies, difficulties in implementation, or suggestions for further clarification.
Conclusion:
These proposals aim to address key issues in real estate insolvency, ensuring a more efficient and transparent process. Stakeholders are encouraged to provide feedback to refine and enhance the regulatory framework governing real estate insolvencies under the IBC.
Download the Discussion Paper on issues related to Real Estate
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