The Insolvency and Bankruptcy Board of India (IBBI) has published a discussion paper addressing critical issues in real estate insolvency with seven key proposals. These proposals stem from a recent study by the Indian Institute of Insolvency Professionals of ICAI (IIIPI), which focused on improving real estate resolutions under the Insolvency and Bankruptcy Code (IBC) and enhancing coordination with RERA. The paper also incorporates insights and concerns from consultations with resolution applicants, insolvency professionals, and other key stakeholders in the insolvency process.
One of the significant proposals is the inclusion of land authorities in the Committee of Creditors (CoC) meetings for real estate companies, though without voting rights. Currently, land authorities, which are typically operational creditors, are not represented in the CoC, even though financial creditors are. IBBI’s proposal aims to include competent authorities as invitees in CoC meetings for real estate companies by adding a sub-regulation to Regulation 18, which would make it mandatory for the resolution professional to invite these authorities as special invitees.
Another key issue discussed is the handling of canceled land allotments in real estate insolvency cases. The IIIPI report highlighted challenges arising when land leases or allotments are cancelled before the insolvency commencement date (ICD). The proposal suggests amending the IBBI Regulations to require the insolvency professional to report such cancellations to the CoC and Adjudicating Authority.
Further, IBBI has proposed empowering the CoC to relax certain conditions for allottee associations or groups to participate as resolution applicants in the Corporate Insolvency Resolution Process (CIRP), facilitating their inclusion by relaxing eligibility criteria and performance security requirements.
Additionally, the paper addresses the need for consistency in applying interest rates for homebuyers’ claims during CIRP. Currently, the 8% annual interest rate set for calculating homebuyers' voting shares is not consistently applied when calculating their actual claims. The proposal suggests including this interest in the homebuyers' claims for resolution plans.
Other proposals include appointing facilitators for large creditor classes, making CoC meeting minutes accessible to all creditors in real estate projects, and streamlining the possession handover process to prevent delays in completing units during the resolution process.
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