Ordinance to amend IBC to put them on par with financial firms to demand dues from builders. For long at the end of the queue when it came to getting their dues from real estate firms, aggrieved homebuyers will now have a place at the table when it comes to deciding on insolvency of real estate firms
Hyderabad, May 24
There is good news on the horizon for potential homebuyers who have been aggrieved because of recalcitrant real estate firms. The Union cabinet on Wednesday approved an ordinance to amend the Insolvency and Bankruptcy Code (IBC) 2016, which if cleared by the President of India, will put homebuyers on par with financial creditors when deciding the fate of real estate firms that have defaulted on loan payments.
Until now, homebuyers were treated as unsecured creditors who came after secured and institutional creditors in terms of priority for recovery of dues.
The move, which comes in the wake of instances of default by real estate firms such as Jaypee Infratech and Amrapali Group among others, has been hailed all round.
The changes were based on suggestions made by a 14-member insolvency law committee to the ministry of corporate affairs. The panel, chaired by the Secretary, Ministry of Corporate Affairs, Injeti Srinivas, made a strong case for treating homebuyers as financial creditors, enabling them to take builders defaulting on their obligations to a bankruptcy court and decide their future along with lenders.
Till now, customers of abandoned home construction projects were considered the last to be compensated after banks, suppliers and other creditors, when a company was put through the insolvency procedure.
However, after the consent to the ordinance by the President, homebuyers will have the right to participate in the insolvency resolution process and be part of the committee of creditors with voting rights on the resolution plans, a report quoted the Corporate Affairs Secretary as saying.
The Insolvency and Bankruptcy Code (IBC), was passed by the Parliament in 2016 overhauling the then existing framework dealing with insolvency of corporates, individuals, partnerships and other entities and paving the way for much needed reforms.
Coming close on the heels of the RERA enactment the year before last, the amendments to the IBC and the subsequent ordinance, awaiting approval by the President, are a shot in the arm for homebuyers who will now be armed with appropriate regulations and laws to pursue redressal from real estate firms.
Here are some of the recommendations of the Injeti Srinivas Committee on the IBC:
■ Treating home buyers as financial creditors will let them take defaulting builders to bankruptcy court
■ Letting lenders to decide on turnaround scheme or liquidation by 66% vote, down from 75%, to speed up decision making
■ Redefining persons disqualified from bidding for bankrupt firm will widen the pool of bidders
■ Rules for interim finance to bankrupt firm will boost market for stressed assets
■ Regulators can’t drag companies to bankruptcy court for defaulting on fees
■ Lenders holding equity from earlier debt recast will not be barred from voting on turnaround scheme
■ Lenders’ action against guarantors to bankrupt firms will not be barred. This will prevent abuse of bankruptcy protection
■ Promoters of bankrupt small businesses should be allowed to bid for the firm if they are not wilful defaulters
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