Bankruptcy Code Amended: Homebuyers’ Position Strengthen
Aug 13, 2019 Real Estate News
The Lok Sabha approved Insolvency and Bankruptcy Code (Amendment) Bill, 2019, which means that the three-year-old code stands amended. According to the government, the particular move is supposed to strengthen the role of home buyers, when the resolution plans of embattled real estate developers are worked out.
The amendment is divided into seven sections, and it gives the power to the committee of creditors (CoC) of a defaulting company to distribute the proceeds in the resolution process. The amendment also states that the resolution plans for the cases that reach IBC must be resolved within 330 days. The authorities also noted that the resolution plan worked out by the CoC, would be binding on all the authorities concerned.
However, one must keep it in mind that the homebuyers who have suffered loss because of the projects stuck by the JayPee, Amrapali, and Unitec have not seen any relief. He buyers are still waiting for the relief to be granted to them by Supreme Court and National Company Law Tribunal (NCLT). The new amendment gives the homebuyers a more significant role in the resolution plan.
Several homebuyers who moved to the apex court against the Jaypee stated in their plea that under the Insolvency and Bankruptcy Code, 2016, flat buyers do not fall into the category of secured creditors and hence they can get their money back, only if something was left paying the secured and operational creditors. Keeping the interest of the buyers, the SC stayed the insolvency proceedings against the firm.
There are several such cases on the court against the biggest and the credible developers of the country. The finance Minister Nirmala Sitharaman has said that the resolution plans would be worked out in such a way that the companies that are tight on the cash will be able to swim through and the liquidity will not be the priority in such case.
The amendment is divided into seven sections, and it gives the power to the committee of creditors (CoC) of a defaulting company to distribute the proceeds in the resolution process. The amendment also states that the resolution plans for the cases that reach IBC must be resolved within 330 days. The authorities also noted that the resolution plan worked out by the CoC, would be binding on all the authorities concerned.
However, one must keep it in mind that the homebuyers who have suffered loss because of the projects stuck by the JayPee, Amrapali, and Unitec have not seen any relief. He buyers are still waiting for the relief to be granted to them by Supreme Court and National Company Law Tribunal (NCLT). The new amendment gives the homebuyers a more significant role in the resolution plan.
Real estate developers that are facing insolvency:
Homebuyers of the various Jaypee developers moved to the court against IDBI bank and approached the NCLT to start the insolvency process. Several of the homebuyers moved to the SC against the NCLT, stating that it will thwart their attempt for justice.Several homebuyers who moved to the apex court against the Jaypee stated in their plea that under the Insolvency and Bankruptcy Code, 2016, flat buyers do not fall into the category of secured creditors and hence they can get their money back, only if something was left paying the secured and operational creditors. Keeping the interest of the buyers, the SC stayed the insolvency proceedings against the firm.
There are several such cases on the court against the biggest and the credible developers of the country. The finance Minister Nirmala Sitharaman has said that the resolution plans would be worked out in such a way that the companies that are tight on the cash will be able to swim through and the liquidity will not be the priority in such case.
Things to keep in mind:
Even though the homebuyers are now at par with their financial creditors and can exercise their right in selecting the resolution professional, they were at the bottom of the CoC earlier. Earlier, there used to be eight levels of distribution in case a builder goes bankrupt, and his assets are liquidated to compensate the stakeholder.- The first ones to get compensation are the professionals and the administrators.
- Second, in line are the financial creditors.
- The third will be workmen.
- The fourth will be the employees of the workmen.
- Unsecured financial creditors are fifth in the line.
- At number six is the government and the dues applicable.
- The remaining money is used to compensate the equity shareholders.
- The last one is the homebuyers.
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