Real estate companies applaud IBBI changes regarding insolvency and liquidation

By Bricksnwall | 2024-02-19

Analysts argue that since the pre-insolvency stage of each project may be registered and monitored as a separate unit under the RERA regulatory framework, it makes sense to continue this segmentation during the insolvency resolution stage as well.

Recently, the insolvency law was amended to allow for project-by-project insolvency and liquidation, which has been welcomed by real estate developers. They believe that the new standards will benefit many different parties, including quicker outcomes.

In order to prevent the entire company from being forced into bankruptcy, the Insolvency and Bankruptcy Board of India (IBBI) modified its rules last week to let the Committee of Creditors (CoC) to invite distinct resolution plans for each real estate project. Homebuyers will be relieved that the regulator stated that allocated real-units would not be included in the liquidation process.

"All stakeholders, including homebuyers and developers, will benefit from the recent amendments," stated Niranjan Hiranandani, managing director of the Hiranandani Group, in an interview with FE.

"By permitting project-level insolvency, the developer would need to come up with ways to pay back the debt of only insolvent projects, which wasn't the case before, improving the likelihood of debt settlement and raising recoveries for creditors," the developer stated.

The Real Estate Regulatory Authority's (RERA) rules are in compliance with the modifications made to the Insolvency and Bankruptcy Code (IBC) standards. Analysts argue that since the pre-insolvency stage of each project may be registered and monitored as a separate unit under the RERA regulatory framework, it makes sense to continue this segmentation during the insolvency resolution stage as well.

According to Sunil Pareek, executive director of Assetz Property Group, the amendment now allows the RP to choose a "tailor-made" approach for each project, which will enable a targeted resolution that is relatively faster and also raise the resolution success rate. "Through this process, the stress project's value erosion can be minimized and homes can be delivered to buyers more quickly," he stated.

The new rules should give much-needed relief to creditors, homebuyers, and developers, according to Realsta founder and CEO Dishant Malik. "These regulations have the potential to expedite the resolution of blocked projects, thereby mitigating delays and apprehensions for purchasers, who can now rest easier knowing that their houses will be delivered on schedule.

In addition, he said, "Creditors can now concentrate on getting paid for specific projects instead of getting caught up in a convoluted and drawn-out resolution process for an entire company."

In order to maintain financial accountability and transparency, the new regulations also require the resolution expert to open distinct bank accounts for each real estate project. Additionally, they let the CoC to form a monitoring committee to oversee the resolution plan's execution.

According to Siddharth Mody, a partner at J. Sagar Associates (JSA), "a dedicated body overseeing the resolution plan's implementation can safeguard homebuyers' interests, ensuring the effective execution of commitments made in the plan."

The new regulations also require the RP to call a meeting of the CoC at least once every thirty days and request that the CoC approve all expenses associated with the insolvency resolution procedure.

According to Mody, "this will introduce a layer of scrutiny that could help in controlling the debtors' unnecessary expenditures, ensuring a more efficient use of resources."

Source: Financial Express