NEW DELHI: The insolvency watchdog has proposed relaxing regulations to extend resolution benefits to all homebuyers in a bankrupt real estate developer’s affected projects, including those who have not filed their claims, a plan that could potentially benefit thousands of allottees across the country.In a discussion paper, the Insolvency and Bankruptcy Board of India (IBBI) has also proposed stricter disclosures (including on the assets of stressed companies seized by the Directorate of Enforcement), greater safeguards in cases where no financial institution is part of the creditors’ committee, and formal recording of the reasons for ordering liquidations.
“It is proposed that the Information Memorandum (in respect of the stressed company) shall contain the details of all assigned parties, including their names, amounts due and assigned units, as reflected in the corporate debtor’s records, whether or not such assigned parties have filed claims; and the resolution plan shall provide for the treatment of such assigned parties,” the regulator said.This move will “ensure fairness, transparency and equal treatment of all genuine homebuyers,” it added. Several real estate developers – including Jaypee, Unitech, Amrapali, Today Homes, Supertech, Logix and Ajnara – are already facing bankruptcy proceedings.
Under the current framework, the resolution plan only considers claims that have been formally submitted by creditors in a timely manner.
“Real estate buyers often lack institutional power, and the corporate bankruptcy resolution process has historically risked marginalizing them. These proposed changes could meaningfully address that power imbalance,” said Yogendra Aldak, executive partner at Lakshmikumaran & Sridharan Lawyers.
Transparency bid
The IBBI, in the information memorandum, has proposed to provide more information on claims, joint development agreements and assets seized by the ED.
If there is no financial institution represented on the committee of creditors (CoC) and a single unregulated financial creditor holds more than 66% of the voting share, the resolution professional will invite the five largest operating creditors (based on admitted claim value) to attend the CoC meeting as observers, the regulator proposed. The CoC consists exclusively of financial creditors.
These observers may receive notices, agendas and minutes and may participate in deliberations without voting rights.
In cases where the CoC recommends the liquidation of a stressed company even if a qualifying resolution plan has been obtained that promises returns in excess of the liquidation value, the CoC must specify the reasons for such a decision in the minutes of its meetings and submit it together with the liquidation application.
Stricter controls on ineligible bidders
To maintain the integrity of the resolution process, the insolvency regulator in a circular issued on Tuesday directed resolution professionals to post a detailed note for financial creditors on compliance with the exclusion criteria meant for bidders of stressed companies under Section 29A of the Insolvency and Bankruptcy Code (IBC). They should present the note when resolution plans are being considered and ensure that the CoC’s deliberations and comments are properly recorded in the minutes of the meetings, the report said.
Shareholder rule for IPE
In a separate discussion paper, the regulator has proposed introducing shareholder rules for directors or partners of a professional insolvency entity (IPE). This aims to curb the concentration of ownership and control among a very limited number of people and to safeguard professional integrity. Each director or partner will own at least 5% of the paid-up share capital (if the IPE is registered as a company) or the total capital contribution (if it is a limited liability company).
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