The Insolvency and Bankruptcy Board of India (IBBI) has proposed reforms to streamline the insolvency process of real estate companies and strengthen protection for home buyers. For thousands of buyers awaiting housing registration in projects undergoing bankruptcy resolution, the IBBI proposed that the ownership of the land, apartment or building be transferred to buyers who are in possession of the property during the bankruptcy resolution of the real estate. company if they are not liable for contributions and subject to the approval of the creditors’ committee.

“To facilitate smooth handover of occupied units or where possession has been transferred to house buyers, it is proposed to enable RP to transfer ownership of land, apartment or building to allottees through transfer during the resolution process, with the approval of CoC. Further, to avoid delays due to unnecessary delays, it is also proposed that with the approval of the CoC, RP may also be permitted to hand over possession of the units to the beneficiaries “as is”, or against payment. of the balance amount, if any, after taking into account the funds owed and the funds required to complete the unit,” the IBBI said in a statement. discussion paper published on November 7.

Several real estate companies such as Jaypee, Today Homes, Logix among others are facing insolvency proceedings.

These amendments have been proposed to improve the efficiency and effectiveness of real estate insolvency proceedings under the Insolvency and Bankruptcy Code (IBC) rules. Comments can be submitted electronically by November 27, 2024, IBBI said.

The IBBI has proposed as many as seven changes to the regulations that govern insolvency resolution in the real estate sector.

The regulator also proposed to empower the CoC to facilitate the participation of allottee associations as resolution candidates.

“…it is proposed to clarify, by way of explanation, that the Committee of Creditors (CoC) has the discretion to relax certain conditions allowing associations or groups of qualified allottees to participate as resolution applicants at the CIRP. The proposal seeks to amend the CIRP regulations to expressly provide that the CoC may approve relaxations of eligibility criteria, earnest money and performance security requirements for associations or groups of allottees that represent at least 10% of allottees or 100 awarded, whichever is greater. », proposed the regulator.

Interest provisions at 8% per annum must be taken into account

IBBI also said that the provisions carrying interest at 8% per annum need to be considered while applying for distribution of resolution proceeds.

“It is proposed to be clarified that payment 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 Code. 4.4 This proposed 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. This could potentially reduce litigation by providing for interest in insolvency, thereby reducing the need for homebuyers to seek orders from other forums,” the regulator said.

IBBI has also proposed to allow the appointment of facilitators for broad categories of creditors. “…we propose to authorize the appointment of facilitators for broad categories of creditors, primarily to improve communication and representation.”

Include land authorities in meetings of the Committee of Creditors as non-voting guests

Another major proposal in the discussion paper released on November 7 is the inclusion of land authorities in Committee of Creditors (CoC) meetings as non-voting guests. In corporate insolvency resolution processes (CIRP) involving real estate companies, land authorities play a crucial role but currently do not have mandatory representation in the CoC, the IBBI said.

Currently, only financial creditors are represented within the CoC, leaving aside land authorities despite their essential role in real estate projects. Their inclusion should improve and clarify regulatory compliance and ultimately improve the feasibility of resolution plans, he adds.

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The discussion paper also highlighted issues surrounding canceled land allotments in insolvency cases, wherein the IBBI proposed that resolution professionals report such cancellations to the CoC, thereby enabling stakeholders to take decisions informed as to the advisability of continuing with the liquidation or continuing the resolution process.

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He also suggested making creditor representation easier by allowing multiple facilitators in cases involving a large number of creditors, primarily to improve communication and representation.

IBBI has recommended that minutes of CoC meetings for real estate projects should be accessible to all creditors through a secure online system. This will in turn improve transparency and counteract rumors and misinformation.

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