IBBI amends resolution rules: Realty insolvency to be project-wise

In a boost to stressed real estate companies, the bankruptcy board has amended the Corporate Insolvency Resolution Process (CIRP) to allow project-wise insolvency in the sector.
 

“The resolution professional (RP), after the approval of the committee, may invite a resolution plan for each real estate project or group of projects of the corporate debtor,” the latest Insolvency and Bankruptcy Board of India (IBBI) notification said.

To further ease the processes, the notification has said that if a company undergoing insolvency has any real estate project, the RP should operate a separate bank account for each project.
 

“Resolution of individual projects would pave the way for better price discovery, competitive bidding, and early resolution in comparison to group project resolution,” said Anjali Jain, partner, insolvency, and restructuring practice at law firm Areness. “Various projects of the same corporate debtor have different stages of completion and even have varied 
 

requirements of funds, and the existing rules were insufficient to accommodate the diversity of such project-specific needs,” Jain said.  
 

Real estate accounts for 21 per cent of the total CIRPs initiated in September 2023. Further study of data indicates that the proportion of realty companies heading for liquidation is 18 per cent, which is higher than those which could be resolved -- 15 per cent -- under the Code.
 

“It is now acknowledged that each project is an independent transaction with its own challenges and does not necessarily reflect the overall brand value of a developer. Though there are corporate and bank guarantees, the move to consider and review each project in isolation will unlock a lot of merits,” said Angad Bedi, managing director of BCD Group.
 

Under the Real Estate Regulatory Authority (RERA) 2016, every promoter has to maintain a separate bank account for each project. All financial transactions are to be done through that account, and audit reports are to be submitted to the authority for accountability.
 

“Any company that is in the real estate development business should follow the RERA rules. It is a welcome move from the government to bring in the policy changes in IBBI in line with RERA 2016,” said Dhananjaya Padmanabhachar, convenor, Karnataka Home Buyers Forum.
 

The insolvency regulator, to the benefit of homebuyers, has also revised rules for voting under CIRP regulations, allowing them to be exceeded by one to seven days, except when requisite majority has been achieved.
 

“The equitable platform for the exercise of voting rights is ensured, which would entail more equal participation of all home buyers, and with the collective engagement of all stakeholders, collective decision-making would be ensured,” Jain said.
 

The notification said the resolution professionals would have to take an undertaking from each member of the committee of creditors that they shall maintain confidentiality of the fair value, the liquidation value, and valuation reports, to cause undue gain or undue loss to itself or any other person.
 

The RP would also be required to hold a meeting of the registered valuers explaining the methodology adopted to arrive at valuation to the members of the committee before computation of estimates, the notification said.
 

The IBBI has also said in the notification that the Committee of Creditors may consider having a monitoring committee for the implementation of the resolution plan with the same or a different resolution professional.



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