Buyers may Lose the Rights to Start Insolvency Against the Builders.
Dec 18, 2019 Real Estate News
On December 11, 2019, the Union Cabinet approved the amendment that aims to prevent the ‘frivolous triggering’ of insolvency proceedings and to safeguard the interest of the companies taking over a stressed firm after the resolution process.
After being introduced in 2016, the Insolvency and Bankruptcy Code has been amended for the fourth time. Apart from the amendment, a new Section, 32A, has also been added to the Code. The Bill seeks to amend the following Sections: 5(12), 5(15), 7, 11, 14, 16(1), 21(2), 23(1), 29A, 227, 239 and 240.
The amendment of Section 7 may take away the rights of the buyers to initiate the corporate insolvency. As mentioned in the official release of the statement, this would be done by adding ‘additional threshold or financial creditors represented by an authorized representative due to large numbers.’
The mentioned threshold can make it difficult for small creditors to initiate the insolvency proceedings by ensuring that the IBC is not invoked for small amounts.
In the past, there have been several instances where the individual homebuyers have moved to the court and initiated the insolvency proceedings against the builder. The position of the corporates that take over the company after insolvency stays more protected as well. Under the IBC (Second Amendment) Bill 2019, enforcement agencies will be prohibited from attaching assets of the companies acquired by a successful bidder after a resolution process, for the criminal offences committed by the previous owner. In several instances, the enforcement directorate and other central and state agencies have seized the assets of the stressed companies even after the resolution process.
After the amendment of Section 29A, the government will also restrict the number of companies bidding for the ownership of the stressed company. The Code already prohibits defaulting promoters and related parties from taking part in the resolution process.
The Cabinet also gave the stressed companies a significant relief by declaring that the licenses, permits, concessions and clearances granted to the corporate debtors cannot be terminated or suspended during the momentum period.
To boost the funding of the financially stressed project, the Cabinet approved the amendment to the Code to protect the last mile funding. According to the official release by the government, the amendments in the Code aim to remove certain difficulties being faced during the insolvency resolution process to realize the objects of the Code and to further ease of doing business.
After being introduced in 2016, the Insolvency and Bankruptcy Code has been amended for the fourth time. Apart from the amendment, a new Section, 32A, has also been added to the Code. The Bill seeks to amend the following Sections: 5(12), 5(15), 7, 11, 14, 16(1), 21(2), 23(1), 29A, 227, 239 and 240.
The amendment of Section 7 may take away the rights of the buyers to initiate the corporate insolvency. As mentioned in the official release of the statement, this would be done by adding ‘additional threshold or financial creditors represented by an authorized representative due to large numbers.’
The mentioned threshold can make it difficult for small creditors to initiate the insolvency proceedings by ensuring that the IBC is not invoked for small amounts.
In the past, there have been several instances where the individual homebuyers have moved to the court and initiated the insolvency proceedings against the builder. The position of the corporates that take over the company after insolvency stays more protected as well. Under the IBC (Second Amendment) Bill 2019, enforcement agencies will be prohibited from attaching assets of the companies acquired by a successful bidder after a resolution process, for the criminal offences committed by the previous owner. In several instances, the enforcement directorate and other central and state agencies have seized the assets of the stressed companies even after the resolution process.
After the amendment of Section 29A, the government will also restrict the number of companies bidding for the ownership of the stressed company. The Code already prohibits defaulting promoters and related parties from taking part in the resolution process.
The Cabinet also gave the stressed companies a significant relief by declaring that the licenses, permits, concessions and clearances granted to the corporate debtors cannot be terminated or suspended during the momentum period.
To boost the funding of the financially stressed project, the Cabinet approved the amendment to the Code to protect the last mile funding. According to the official release by the government, the amendments in the Code aim to remove certain difficulties being faced during the insolvency resolution process to realize the objects of the Code and to further ease of doing business.
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