IBBI suggests project-based insolvency, excludes allotted property
New Delhi, Nov 7, 2023
IBBI has also proposed project-based insolvency to attract multiple bidders for different projects in real estate insolvencies
To address the plight of homebuyers, the Insolvency and Bankruptcy Board of India (IBBI) has proposed that property in the possession of allottees should be excluded from the resolution process and the liquidation estate during the corporate insolvency resolution process. IBBI has also proposed project-based insolvency to attract multiple bidders for different projects in real estate insolvencies.
In the discussion paper released on November 6, the insolvency regulator has also advocated for an increased role of the Real Estate Regulatory Authority (Rera) by proposing compulsory registration of all real estate projects undergoing corporate insolvency resolution process with the real estate regulator by the insolvency professionals.
“The registration of the Real Estate Project is essential for ensuring a more transparent, accountable and efficient process,” IBBI has said.
IBBI has also sought views of stakeholders on the implementation of Amitabh Kant’s Committee Report on Real-Estate projects. The report related to Legacy Stalled Real Estate Projects recommended that “the Insolvency and Bankruptcy Code (IBC) needs to be reformed to better accommodate the complexities of the real estate sector.”
Some of the suggestions include project-wise insolvency, transfer of the ownership and possession of a plot, apartment, or building to the allottees during the resolution process.
IBBI is also considering that through its regulations, it could come up with a resolution mechanism tailored to address the needs of the real estate sector to provide for project-based insolvency and also allow homebuyers to become Resolution Applicants.
On the proposed project-wise insolvency, experts have flagged some concerns such as an increase in the administrative burden, especially if a real estate company has multiple projects at various stages of development.
“It may complicate the overall insolvency process, as coordinating multiple resolution plans and involving various stakeholders for each project can be challenging. This could potentially lead to uneven results, with some projects being resolved more efficiently than others,” said Siddharth Mody, Partner, J. Sagar Associates.
However, most agree that if one project has defaulted, it makes little sense to drag the entire company into the Corporate Insolvency Resolution Process (CIRP). “Project-wise insolvency or ‘reverse insolvency’ is otherwise a very practical solution given the unique nature of the real estate sector which has intervening financial interests of lenders and allottees alike,” said Smiti Tiwari, Partner, Khaitan Legal Associates.
In line with the Rera provision, IBBI has also suggested maintaining separate bank accounts for each project and to ensure transparency in the process. This, IBBI has said, would facilitate information about a particular project which may be useful for project-wise insolvency or for inviting separate resolution plans for a particular real estate project.
IBBI has also stressed that in cases where the allottees have paid the full amount and occupied the units, or possession of a plot, apartment, or building has already been handed over to them, the transactions need to be formalized through the transfer of such units during the resolution process with the approval of the Committee of Creditors. This is being suggested not just with a view to the larger public good, but also to reduce disputes at the adjudicating authority.
The resolution professional, IBBI has proposed, may also be permitted to hand over the possession of units to the allottees on an ‘as is where is’ basis or on payment of the balance amount.
[The Business Standard]
