IBBI Releases Discussion Paper On Real Estate Issues, Suggests Inclusion Of Land Authorities In CoC Meetings
On 7th November, 2024, the Insolvency and Bankruptcy Board of India (IBBI) has released a discussion paper on the issues related with the Real Estate with seven proposals. This discussion paper is based on findings and recommendations from a recent study group by the Indian Institute of Insolvency Professionals of ICAI (IIIPI) that focused on improving real estate resolutions under...
On 7th November, 2024, the Insolvency and Bankruptcy Board of India (IBBI) has released a discussion paper on the issues related with the Real Estate with seven proposals.
This discussion paper is based on findings and recommendations from a recent study group by the Indian Institute of Insolvency Professionals of ICAI (IIIPI) that focused on improving real estate resolutions under IBC and coordination with RERA. It also includes issues and concerns raised during recent consultations with resolution applicants, Insolvency Professionals and other key stakeholders in the insolvency process.
Proposed Inclusion of Land Authorities in Committee of Creditors (CoC) Meetings
In corporate insolvency resolution processes (CIRP) involving real estate companies land authorities are crucial but currently they not represented in the Committee of Creditors (CoC). Financial creditors are included in the CoC but land authorities who are usually operational creditors are not.
To address this IBBI has proposed inclusion of competent authorities as invitees to CoC meetings for real estate companies without voting rights.
The proposal suggests adding a sub-regulation to Regulation 18 requiring the resolution professional to invite competent authorities as defined in the Real Estate Regulation Act, 2016 to attend CoC meetings as special invitees without voting rights.
Handling cancelled land allotments in real estate insolvency cases
The IIIPI report highlighted problems when land leases or allotments for real estate corporate debtors are cancelled and possession is taken back by authorities before the insolvency commencement date (ICD).
The proposal suggests amending the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 to include a provision requiring the Insolvency Professional to report to the Committee of Creditors and Adjudicating Authority if land allotment is cancelled and possession taken back by authorities before the ICD in real estate insolvency cases.
Empower CoC to Facilitate Participation of Associations of Allottees as Resolution Applicants
It further proposes that the CoC be given the discretion to relax certain conditions for qualified associations or groups of allottees to participate as resolution applicants in the CIRP.
Specifically, the proposed amendment to the CIRP regulations would expressly grant the CoC the authority to approve relaxations to eligibility criteria, earnest money deposit and performance security requirements for allottee associations or groups representing at least 10% of allottees or 100 allottees, whichever is higher.
Inclusion of interest in homebuyers' claims during CIRP
While homebuyers are recognized as financial creditors under IBC there is inconsistency in how interest is applied to their claims.
Regulation 16A(7) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 sets an 8% per annum interest rate for calculating the voting share of homebuyers. However, there is confusion about whether this 8% should also be included when calculating the actual claim amount.
To address this the proposal suggests that the 8% interest should be included in the homebuyers' claims for resolution plans and distributions under Section 53 of IBC.
Representation of large numbers of creditors through facilitators
Currently IBC and CIRP regulations allow only one authorized Representative for each class of creditors regardless of the class size. In cases where a class has a large number of creditors this single authorized Representative may struggle to effectively communicate with and represent all creditors which can lead to potential issues in representing the diverse interests within the class.
To resolve this the proposal suggests allowing the appointment of facilitators for large classes of creditors.
Proposal to disseminate CoC minutes of meeting to all creditors in class of real estate projects
The proposal suggests making the CoC meeting minutes accessible to all allottees in real estate insolvency cases by posting the minutes on the website where all CIRP-related information is available.
Streamlining Possession Handover in Real Estate Projects
The proposal suggests that with the approval of the Committee of Creditors, the Resolution Professional should be allowed to formalize the transfer of possession and ownership of units to allottees who have paid in full.
Additionally units that are under technical possession by allottees should be excluded from the insolvency process to avoid unnecessary delays.
It further proposes that the RP be allowed to transfer the ownership of properties during the resolution process and facilitate possession on an "as is where is" basis, or upon payment of any outstanding amounts, after accounting for the funds required to complete the units.