Real estate developers have welceomd the recent amendments to the insolvency law facilitating project-wise insolvency and liquidation process in the sector. They feel the new norms would bring a multitude of benefits for various stakeholders, including faster resolutions.
Last week, the Insolvency and Bankruptcy Board of India (IBBI) tweaked its regulations to allow the Committee of Creditors (CoC) to invite separate resolution plans for each real-estate project, rather than dragging the whole firm into insolvency proceedings. On liquidation, the regulator said that allotted real-units units would be kept out of the process, thereby providing relief to homebuyers.
Niranjan Hiranandani, managing director, Hiranandani Group told FE: “the recent amendments are beneficial for all stakeholders, including the homebuyers and developers.”
“By allowing project-wise insolvency, the developer would have to find means to repay the debt of just insolvent projects, which was not the case earlier, thereby enhancing chances of settling debt and increasing recoveries for creditors,” he said.
The changes in the Insolvency and Bankruptcy Code (IBC) norms are in line with the Real Estate Regulatory Authority (RERA) guidelines. Since the regulatory framework under RERA allows registration and monitoring of each project as a separate unit at pre-insolvency stage, it is only logical that the same differentiation is maintained at the stage of insolvency resolution, say analysts.
Sunil Pareek, executive director, Assetz Property Group said that the amendment now gives power to the RP to decide for an approach to have a “tailor-made” approach to resolve each project, which will facilitate relatively faster targeted resolution and also increase the resolution success percentage. “In the process, the value erosion of the stress project can be minimised and homes delivered to the buyers faster,” he said.
Dishant Malik founder & CEO of Realsta said that the new regulations are expected to provide much-needed relief to developers, homebuyers, and creditors alike. “These (rules) can lead to faster resolution of stalled projects, reducing delays and uncertainties for homebuyers, who can now have greater confidence in the timely delivery of their homes.”
“Creditors can also now focus on recovering their dues from individual projects rather than being tied up in a complex and lengthy resolution process for an entire company,” he said.
The amended rules further mandates the resolution professional to open separate bank accounts for each real estate project to ensure financial transparency and accountability, and enables the CoC to establish a monitoring committee for overseeing the implementation of the resolution plan.
“A dedicated body overseeing the resolution plan’s implementation can safeguard homebuyers’ interests, ensuring the effective execution of commitments made in the plan,” said Siddharth Mody, Partner at J. Sagar Associates (JSA).
The new rules also mandate the RP to convene a CoC meeting at least once in every thirty days, and asks the former to seek the CoC’s approval for all costs related to the insolvency resolution process.
“This will introduce a layer of scrutiny that could help in controlling unnecessary expenditures of the debtors, ensuring a more efficient use of resources,” Mody said.