- Amendment will also give home buyers due representation in the CoC
- Now, home buyers will be able to participate in decision-making process
- First bankruptcy resolution materialised under IBC law was Bhushan Steel
Ten Points on the insolvency and bankruptcy law
Home buyers will be treated as financial creditors, which means they will be on par with banks. Before the new rules, buyers could hope to recover their money only if anything was left after secured and operational creditors were compensated.
As financial creditors, home buyers will now be able to participate in the decision-making process when developers are declared bankrupt under the bankruptcy law - IBC (Insolvency and Bankruptcy Code, 2016).
As the home buyers are treated on par with the financial creditors, they will also be allowed to file application seeking insolvency of the developers. The amendment will also give them due representation in the Committee of Creditors (CoC) and make them an integral part of the decision-making process of insolvency, which is known as corporate insolvency bankruptcy process of IBC.
The amendment of involving home buyers in the process was mooted on the suggestions of a 14-member government insolvency law committee which was formed in November last year for resolving the issues that were arising in the implementation of insolvency and bankruptcy law.
With realty firms, such as Jaypee Infratech, facing insolvency proceedings, the ordinance is set to provide relief to the home buyers who face immense hardships because of incomplete real estate projects. Sometimes these buyers have to wait for years to get the possession of their flats for which they have already made the payment. And if they want their money back, they barely have an alternative.
Apart from the home buyers, another major beneficiary after the IBC amendment would be Micro, Small and Medium Enterprises (MSME) sector as the sector would get a special relief. As applicable in other sectors, the promoter of MSME will not be disqualified to bid for their own enterprise (undergoing the insolvency resolution process) as long as they are not the the wilful defaulters.
The amendment encourages resolution instead of liquidation for which, the voting threshold for approval has been reduced to 66 per cent from 75 per cent for all major decisions that are taken during the proceedings of insolvency. This means that for several decisions such as approval of resolution plan and extension of insolvency resolution process period, fewer members' approval is necessary, as the ordinance comes into effect.
The IBC was amended in January this year also to prevent wilful defaulters from bidding for the stressed assets. Even the defaulters whose accounts have been classified as non-performing assets were also barred from bidding.
The first bankruptcy resolution that was materialised under the IBC law was that of Bhushan Steel wherein settlements of the amounts equivalent to Rs 35,200 crore towards financial creditors were made last month.
The insolvency and bankruptcy code (IBC), which came into force in December 2016, allows for the time-bound insolvency resolution process.