Homebuyers may get possession of flats/plots during insolvency process of real estate firm
The Insolvency and Bankruptcy Board of India (IBBI) has proposed an array of changes to make corporate insolvency resolution process (CIRP) of real estate companies more effective.
The regulator has proposed that to facilitate the smooth handover of occupied units or where possession has been transferred to home buyers, Resolution Professionals should be allowed to handover the ownership of a plot, apartment, or building to the allottees through transfer during the resolution process, with the approval of CoC.
Further, the regulator suggests that to avoid delays due to unnecessary holds-ups, RP may also be permitted (with the approval of the CoC) to hand over the possession of units to the allottees on ‘as is where is’ basis or on payment of balance amount, if any, after taking in to account the funds due and funds required for completing the unit.
Separate plan for each project
In another proposal, the insolvency regulator suggests that the Resolution Professional may invite separate plan for each project of a real estate firm undergoing insolvency. It would also encourage the association of allottees of a real state project to bring their own resolution plan and resolve issues in a specific project.
The rationale behind this proposal is that generally, the corporate debtor which is associated with real estate has multiple projects that are at different stages of construction. Some projects have been completed and some are partially completed, or some are at the initial phase of construction. However, investing in all projects by one resolution applicant requires huge capital, and thus limits the number of resolution applicants. It is often seen that some resolution applicants are not interested in all projects and want to undertake specific projects. Moreover, multiple bidders for different projects could yield better value than a single bidder for the entire business.
It has also been proposed that in line with the RERA provision for maintaining separate accounts for each project and to ensure transparency in the process, IRP/RP should operate a separate bank account for each project undergoing CIRP.
Exclusion of property in possession of homebuyers from the liquidation estate
The regulator has also proposed that assets in possession of the allottee be excluded from the liquidation estate under Section 36(4)(e).
Section 36 of the Code defines ‘Liquidation estate’ which states that for the purposes of liquidation, the liquidator shall form an estate of the assets which will be called the liquidation estate in relation to the corporate debtor. Clause (4) of section 36 of the Code states a list of assets which shall not be included in the liquidation estate and shall not be used for recovery in the liquidation. Section 36(4)(e) further provides power to the Board to specify any other assets which shall not form a part of the liquidation estate of the Corporate Debtor.
Also See: IBC should be used as last option for stressed real estate projects: Panel
