Homebuyers are now at par with banks and institutional creditors in priority for recovering of dues from bankrupt or insolvent realty firms.
After months of deliberation, the Union Cabinet passed an Ordinance to amend the Insolvency and Bankruptcy Code (IBC) to treat homebuyers at par with the financial creditor in May, giving the much-needed relief. As some realty firms were facing potential insolvency proceedings, homebuyers, whose money were stuck in their housing projects, were left in a lurch. But not anymore. Homebuyers are now at par with banks and institutional creditors in priority for recovering of dues from bankrupt or insolvent realty firms.
How IBC will work for homebuyers: Step-by-step guide
Insolvency Resolution Process for Corporate Persons (IBBI) has notified revised norms for insolvency resolution process.
- IBBI mandated that a resolution professional should determine whether a corporate debtor had indulged in fraudulent transactions.
- Wherever the corporate debtor has classes of creditors having at least ten creditors in the class, the interim resolution professional (RP) will offer a choice of three insolvency professionals.
- These three will act as the authorised representative of creditors in each class.
- The insolvency professional, with the highest number of creditors in the class, will be appointed as the authorised representative of the creditors of the respective class.
- In cases where the interest rate has not been agreed upon between the parties, the voting share of such a creditor would be in proportion to the financial debt that includes an annual eight per cent interest rate. It provides clarity on the calculation of total financial debt especially in case of homebuyers.
- The RP will then form an opinion whether the corporate debtor was involved in preferential, undervalued, extortionate or fraudulent transactions within a set timeline.
- The RP will publish an invitation for Expression of Interest by the 75th day from the insolvency commencement date.
- In case of withdrawal of insolvency proceedings, the proposal would be accepted if the same has been approved by the Committee of Creditors (CoC) concerned with 90 per cent voting share.
- Once the CoC nod is in place, then the resolution professional has to submit the application to the adjudicating authority on behalf of the applicant within three days of such an approval.
To protect the interest of homebuyers, the much-awaited Real Estate Act came into force last year. RERA promises transparency, accountability and efficiency in the real estate sector and the government has described the implementation of the Act as the beginning of an era where the consumer is the king.