Govt appoints review committee for Insolvency & Bankruptcy Code
The government has appointed a committee to review the Insolvency & Bankruptcy Code (IBC) which will address concerns and remove glitches. The 14-member committee will be headed by corporate affairs secretary I Srinivas and will include Insolvency & Bankruptcy Board of India (IBBI) Chairman MS Sahoo, representatives from RBI, department of financial services and external experts. It has been tasked with assessing the functioning of the new law in addition to examining issues that could impact the framework prescribed under the law that was enacted to speed up revival and exit of firms.
Ramesh Nair, CEO & Country Head, JLL India said, “There is a need for a fine balance here as creditors or primary lenders to the project have advanced a loan to the project under certain considerations where third party rights, as in the case of residential projects are being created. Primacy to homeowners can impair the ability of the lender to find an acceptable exit and is thus a business risk that might be factored in going forward when lending for real estate projects. This has the potential to impact the construction finance and lending market where lenders will have to be extra diligent.”
“A middle of the road solution is needed, though there is no doubt that homebuyers need to be defined as an interested party in insolvency proceedings concerning real estate projects so that their rights are adequately protected,” Nair said.
“In the above context, the review committee’s role assumes great significance in regard to the cognizance of buyer rights that the courts have taken and the government is keen to protect,” he added.
Dr Niranjan Hiranandani, Founder & CMD, Hiranandani Communities & National President – NAREDCO said that the intention behind setting up of a review committee for Insolvency & Bankruptcy Code (IBC) is to expedite next step in formalizing the restructuring process to revive companies and their on-going projects in instances of bankruptcy. He said, “So, you have the creditors, and the IBC lays down the process under which the bankrupt company is to see a change of management and efforts at revival. It also mentions the aspect of who gets priority in terms of the outstanding debt. This is where the hitch comes up – should the debt-ridden company get an option to come up with a resolution plan or the insolvency process is to get activated – and how much time should be given? Secondly, corporate debtors and creditors are bound by laws and regulators other than IBC. The operation of these laws may need to be ironed out for effective functioning of the insolvency law.”
Commenting on the law, Hiranandani added, “From a real estate perspective, there pose a challenge in stalled projects – whether flat buyers who paid advance money but had not received possession of their flats could be considered as creditors. While legal judgements have broadly maintained that flat buyers’ interest is paramount, the IBC doesn’t have a provision that is ‘in sync’ with this aspect. The recent amendment mentions ‘stake holders’ but does not specifically mention ‘flat buyers in projects that may get stalled on account ion bankruptcy of the real estate developers’. On the other hand, RERA specifies that aggrieved home buyers, in such a situation, can opt to have the real estate regulator use the money in the project’s escrow account, appoint a new contractor to complete the building, and hand over possession to those who had paid advance money but were unable to get their flats on account of the original developer’s bankruptcy. This is among the aspects where the review committee is going through provisions of the IBC and I hope that flat buyers’ rights will get protected.”