The regulator IBBI has approved amendments to its regulations aimed at accelerating the process of resolving insolvency in the real estate sector. These changes provide for an individual approach to each project, increased information disclosure, enhanced involvement of homebuyers, and detailed cost assessment to attract more realistic proposals.
These changes were introduced against the backdrop of problems, difficulties, and delays faced by problematic real estate projects, which negatively affects homebuyers. IBBI, acting as the supervisory body, has adjusted the rules concerning the insolvency resolution process for corporate entities.
IBBI is a key institution in implementing the Insolvency and Bankruptcy Code (IBC), which sets the framework for resolving distressed assets in a market-oriented and time-bound manner. In a statement on Saturday, IBBI noted that the purpose of the amendments is to facilitate a more informed and viable resolution of real estate projects, increase transparency and accountability, and strengthen the interests of homebuyers and other stakeholders in the insolvency resolution process.
With these changes, IBBI aims to strengthen financial management and monitoring at the individual project level, introduce technical assessment and valuation of project completion costs in real estate, and improve the disclosure of information related to these projects.
Furthermore, the amendments are designed to stimulate the participation of homebuyers, enhance oversight during the insolvency resolution process, and stipulate requirements for every resolution plan at the project level.
According to IBBI data, the amended norms will facilitate the process of identifying and excluding projects within the resolution process, as well as simplifying the transfer of ownership to homebuyers. Some other changes have also been made to improve procedures.
Under the IBC, the insolvency process is overseen by an Insolvency Resolution Professional or Interim Resolution Professional (IRP), and the decision on the resolution plan is made by the Committee of Creditors (CoC). This plan must be approved by the National Company Law Tribunal (NCLT), which acts as the arbitrator.
Key amendments to the rules regarding the Corporate Insolvency Resolution Process (CIRP) involving multiple real estate projects
Financial Discipline
For each real estate project of a corporate debtor in insolvency, a separate bank account must be maintained. The Resolution Professional is obligated to present financial information for each project to the Committee of Creditors, and the requirement to use funds in accordance with the RERA Act must be adhered to during the resolution process. This ensures that funds contributed for a project are used specifically for that project, thereby enhancing financial discipline and strengthening the trust of homebuyers and creditors in the use of project funds.
Minimizing Disruptions
At the first meeting, the Resolution Professional must present all project information to the Committee of Creditors, including the stage of completion and the status of ownership and occupancy. This will help the Committee of Creditors determine whether any project needs to be excluded from the resolution process, and such a decision must be approved by the Arbitrator. This system will allow for individualized insolvency resolution in real estate, minimizing disruptions in completed and occupied projects and focusing resolution efforts on those projects that truly require intervention.
Ensuring Realistic Proposals
With prior approval from the Committee of Creditors, the Resolution Professional must appoint independent experts to conduct technical assessments and valuations of project completion costs at the individual project level before inviting expressions of interest. This assessment must be included in the project memorandum and made available to potential buyers. The new requirements will help reduce information asymmetry among stakeholders and ensure the receipt of higher quality and more realistic proposals.
To ensure expanded disclosure, the project memorandum must contain detailed information for each project, including information on completed and under-construction properties.
Homebuyers
Authorized representatives of homebuyers must provide the Resolution Professional with minutes of their meetings with creditors, which the Professional then submits to the Committee of Creditors. Minutes of the Committee of Creditors meetings must record the opinions, concerns, and views expressed by authorized representatives on behalf of respective creditors. These measures aim to increase transparency and ensure that the issues of homebuyers and other classes of creditors are presented to the Committee of Creditors.
Oversight and Project-Level Requirements for Resolution Plans
The monitoring committee for the implementation of the resolution plan must include representatives of authorized homebuyers and a representative of the relevant RERA, subject to the authority's consent. IBBI stated that the participation of homebuyers and regulatory bodies will help resolve issues related to permits, compliance, and construction stages on time, reducing implementation delays and disputes. Every resolution plan must contain comprehensive details, including timelines for completion and transfer of ownership for each project, by phase or by tower, as applicable. Furthermore, a progress report must be periodically submitted to the monitoring committee. IBBI emphasized that clear commitments and timelines at the project level will give greater confidence to homebuyers and reduce disputes regarding the implementation of the approved resolution.
